Form 10-Q
UNITED STATES 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 March 31,2000
_____________________________
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, PA 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 [ ]
______________
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
2,570,034 shares of $.25 (par) common stock were
_________________
outstanding as of May 2, 2000.
______________
<PAGE>
UNION NATIONAL FINANCIAL CORPORATION
10Q INDEX Page
#
PART I - FINANCIAL INFORMATION: _________
_______________________
Item 1 - Financial Statements
- 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
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 5-16
Item 3 - Quantitative and Qualitative Disclosures About
Market Risk 13-14
PART II - OTHER INFORMATION
__________________
Item 1 - Legal Proceedings 17
Item 2 - Change in Securities 17
Item 3 - Defaults Upon Senior Securities 17
Item 4 - Submission of Matters to a Vote of
Security Holders 17
Item 5 - Other Information 17
Item 6 - Exhibits and Reports on Form 8-K 17-18
Signature Page 19
Exhibit 27 - Financial Data Schedule 20
<PAGE>
<TABLE>
Union National Financial Corporation
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
<CAPTION>
(In Thousands) 3/31/00 12/31/99
______________________
<S> <C> <C>
ASSETS
Cash and Due from Banks $5,272 $7,004
Federal Funds Sold 400 0
Investment Securities Held to Maturity
(Market Value - 2000-$27,191;1999-$27,620) 28,143 28,712
Investment Securities Available for Sale 51,842 52,114
Loans(Net of Unearned Income) 178,553 174,854
Less: Allowance for Loan Losses (1,798) (1,783)
______________________
Total Net Loans 176,755 173,071
Premises and Equipment - Net 5,285 5,191
Accrued Interest Receivable 1,960 1,716
Deferred Income Taxes 815 813
Investment in Limited Partnerships 807 823
Other Assets 387 135
_____________________
TOTAL ASSETS $271,666 $269,579
=====================
LIABILITIES
Deposits:
Noninterest-Bearing $23,891 $21,889
Interest-Bearing 190,431 187,292
_____________________
Total Deposits 214,322 209,181
Short-Term Borrowing 5,826 9,100
Long-Term Debt 27,035 27,035
Accrued Interest Payable 1,220 963
Other Liabilities 398 236
_____________________
TOTAL LIABILITIES 248,801 246,515
STOCKHOLDERS' EQUITY
Common Stock (Par Value $.25) 689 657
Shares: Authorized - 20,000,000; Issued -
2,754,526 in 2000 (2,626,935 in 1999)
Outstanding - 2,575,905 in 2000 (2,483,072
in 1999)
Surplus 9,323 7,250
Retained Earnings 17,610 19,323
Accumulated Other Comprehensive Income/(Loss)(1,048) (1,038)
Less: Treasury Stock - at cost
(178,621 shares in 2000 and 143,863 shares
in 1999) (3,709) (3,128)
______________________
TOTAL STOCKHOLDERS' EQUITY 22,865 23,064
______________________
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $271,666 $269,579
======================
* The Stockholders' Equity and share information as of March 31,
2000, reflects the 5% stock dividend declared by the
Corporation's Board of Directors on April 13, 2000, payable on
May 19, 2000, to stockholders of record on May 2, 2000.
The accompanying notes are an integral part of the
consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<CAPTION>
Three Months Ended March 31,
___________________________________
(In Thousands, except Per Share Data) 2000 1999
___________________________________
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $3,708 $3,497
Investment Securities:
Taxable 907 799
Exempt from Federal Taxes 312 302
Other 4 62
_____________________
Total Interest Income 4,931 4,660
INTEREST EXPENSE
Deposits 1,880 1,742
Short-Term Borrowing 81 3
Long-Term Debt 394 393
_____________________
Total Interest Expense 2,355 2,138
_____________________
Net Interest Income 2,576 2,522
PROVISION for LOAN LOSSES 51 42
_____________________
Net Interest Income after Provision
for Loan Losses 2,525 2,480
OTHER OPERATING INCOME
Trust Income 41 31
Service Charges on Deposit Accounts 163 120
Other Service Charges, Commissions, Fees 147 138
Investment Securities Gains/(Losses) (5) 0
Other Income 37 46
_____________________
Total Other Operating Income 383 335
OTHER OPERATING EXPENSES
Salaries and Wages 986 853
Retirement Plan and Other Employee Benefits 253 209
Net Occupancy Expense 165 161
Furniture and Equipment Expense 100 90
FDIC Insurance Assessment 11 6
Other Operating Expenses 579 539
_____________________
Total Other Operating Expenses 2,094 1,858
_____________________
Income before Income Taxes 814 957
PROVISION for INCOME TAXES 139 199
_____________________
NET INCOME for PERIOD $675 $758
=====================
PER SHARE INFORMATION*
Net Income for Period (Basic and Assuming
Dilution) $0.26 $0.29
Cash Dividends $0.143 $0.122
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(UNAUDITED)
Net Income for Period $675 $758
Other Comprehensive Income, Net of Tax:
Unrealized Holding Gains/(Losses) on Investment
Securities Available for Sale Arising
During Period (13) (178)
Reclassification Adjustment for (Gains)/Losses
included in Net Income 3 0
_____________________
Total Other Comprehensive Income/(Loss) (10) (178)
______________________
COMPREHENSIVE INCOME for PERIOD $665 $580
=====================
* Per share information reflects the 5% stock dividend declared
by the Corporation's Board of Directors on April 13, 2000,
payable on May 14, 2000 to stockholders of record on May 2,2000.
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>
Three Months Ended March 31,
________________________________
(In Thousands) 2000 1999
________________________________
<S> <C> <C>
CASH FLOWS from OPERATING ACTIVITIES
Net Income $ 675 $ 758
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 113 113
Provision for Loan Losses 51 42
Investment Securities (Gains)/Losses 5 0
Provision for Deferred Income Taxes 3 (11)
(Increase)/Decrease in Accrued
Interest Receivable (245) (257)
(Increase)/Decrease in Other Assets (240) (70)
Increase/(Decrease) in Other Liabilities 419 346
_____________________
Net Cash Provided by Operating Activities 781 921
CASH FLOWS from INVESTING ACTIVITIES
Net(Increase)/Decrease in Federal Funds Sold (400) 7,165
Proceeds from Sales of
Available for Sale Securities 1,009 0
Proceeds from Maturities of
Available for Sale Securities 1,188 8,939
Proceeds from Maturities of
Held to Maturity Securities 1,123 406
Purchases of Available for Sale Securities (1,946) (11,960)
Purchases of Held to Maturity Securities (553) (2,455)
Loans Made to Customers, Net of
Principal Collected on Loans (3,734) (3,592)
Purchases of Property and Equipment (203) (112)
_____________________
Net Cash (Used in)Investing Activities (3,516) (1,609)
CASH FLOWS from FINANCING ACTIVITIES
Net Increase/(Decrease)in Demand Deposits
and Savings Accounts 1,800 (849)
Net Increase/(Decrease) in Certificates
of Deposits 3,341 1,922
Net Increase/(Decrease) in Short-Term
Borrowing (3,274) 106
Proceeds from Issuance of Long-Term Debt 10,000 0
Payment on Long-Term Debt (10,000) (1,675)
Acquisition of Treasury Stock (581) (270)
Issuance of Common Stock 88 77
Cash Dividends Paid (371) (325)
_____________________
Net Cash Provided by/(Used In)
Financing Activities 1,003 (1,014)
_____________________
Net Increase/(Decrease) in Cash
and Cash Equivalents (1,732) (1,702)
CASH and CASH EQUIVALENTS -
Beginning of Period 7,004 7,341
_____________________
CASH and CASH EQUIVALENTS - End of Period $5,272 $5,639
=====================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Payments for:
Interest $2,098 $2,057
Income Taxes 0 25
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 periods presented. 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 1999 Annual Report to
Stockholders.
3. All per share computations include the retroactive effect of
stock dividends. This includes the 5% stock dividend declared by
the board of directors on April 13, 2000, payable on May 19,
2000, to stockholders of record on May 2, 2000. The weighted-
average number of shares of common stock outstanding was as
follows:
Basic Assuming Dilution
Three Months Ended: ___________ ___________________
March 31, 2000 2,589,845 2,596,666
March 31, 1999 2,652,801 2,657,432
4. 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. In addition, the transition provisions
of this Statement allow Union National to reclassify held to
maturity securities to an available for sale classification.
Union National does not expect the provisions of this Statement
to have a material effect on the liquidity, results of operations
or capital resources of Union National when it becomes effective.
The effective date of this pronouncement was delayed until the
first quarter of 2001 through the issuance of SFAS No. 137.
However, earlier application is permissible. Union National is
currently evaluating this Statement and considering early
adoption in the second or third quarter of 2000. Early adoption
of the provisions of this Statement would allow Union National to
reclassify securities that are currently classified as held to
maturity to an available for sale classification.
5. The results of operations for the three month period ended
March 31, 2000, are not necessarily indicative of the results to
be expected for the full year.
6. Certain reclassifications have been made to the 1999
consolidated financial statements to conform with the 2000
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 the accompanying
consolidated financial statements for Union National Financial
Corporation, a bank holding company, and its wholly-owned
subsidiary, Union National Community Bank. Union National's
consolidated financial condition and results of operations
consist almost entirely of the bank's financial condition and
results of operations. This discussion should be read in
conjunction with the 1999 Annual Report. Current performance
does not guarantee, assure or indicate similar performance in the
future.
We have made forward-looking statements in this document, and in
documents that we incorporate by reference, that are subject to
risks and uncertainties. Forward-looking statements include the
information concerning possible or assumed future results of
operations of Union National Financial Corporation, Union
National Community Bank or the combined company. When we use
words such as "believes," "expects," "anticipates" or similar
expressions, we are making forward-looking statements.
Shareholders should note that many factors, some of which are
discussed elsewhere in this document and in the documents that we
incorporate by reference, could affect the future financial
results of Union National Financial Corporation, Union National
Community Bank or the combined company and could cause those
results to differ materially from those expressed in our forward-
looking statements contained or incorporated by reference in this
document. These factors include the following:
* operating, legal and regulatory risks;
* economic, political and competitive forces affecting our
banking, securities, asset management and credit services
businesses; and
* the risk that our analyses of these risks and forces could be
incorrect and/or that the strategies developed to address them
could be unsuccessful.
Union National undertakes no obligation to publicly revise or
update these forward-looking statements to reflect events or
circumstances that arise after the date of this report. Readers
should carefully review the risk factors described in other
documents that Union National periodically files with the
Securities and Exchange Commission.
RESULTS OF OPERATIONS
______________________
Overview
Consolidated net income for the three months ended March 31,
2000, was $675,000, a decrease of 10.9%, as compared to
consolidated net income of $758,000 for the same period of 1999.
On a per share basis, net income for the three months ended March
31, 2000, was $.26, as compared to $.29 for the same period in
1999. Per share information reflects the 5% stock dividend
declared by Union National's board of directors on April 13,
2000, payable on May 19, 2000, to stockholders of record on May
2, 2000.
Results of operations for the three months ended March 31, 2000,
as compared to the same period in 1999 were impacted by the
following items:
* Net income decreased due to a slight narrowing of the spread
between the earnings rates on loans and investments as compared
to the interest rates paid on deposits and long-term debt.
* Net income increased due to growth of 7.8% in average net
loans, which was funded by growth in average deposits and
additional borrowings.
* Net income decreased due to an increase in the provision for
loan losses.
* Net income increased due to a 14.3% increase in other
operating income.
* Net income decreased due to a 12.7% increase in other
operating expenses.
<PAGE>
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 (ROA), was 1.00% on an annualized basis
for the three months ended March 31, 2000, as compared to 1.18%
for the same period in 1999. Net income as a percent of average
stockholders' equity, also known as return on average equity
(ROE), was 11.9% on an annualized basis for the three months
ended March 31, 2000, as compared to 12.8% for the same period in
1999. ROE was positively impacted by the treasury stock
repurchase plan and by an increase in the unrealized loss on
available for sale securities. ROE without considering
unrealized losses on available for sale securities was 11.37% for
the first quarter of 2000 as compared to 12.88% for the same
period of last year. See the discussion under the section on
Stockholder's Equity for further details.
Management currently expects a moderation in the growth of loans
and deposits for the remainder of 2000 as compared to historic
growth rates of deposits. Moderation in loan and deposit growth
is expected due to increased competition in Union National's
market area and due to rising interest rates which currently are
expected to negatively impact loan demand. However, management
has taken specific actions to enhance the bank's competitive
position for loans, deposits and other financial services in
northwestern Lancaster County, Pennsylvania (the bank's market
area). These actions include the following:
* increased emphasis on business development and continued sales
training for staff;
* further development of both loan and deposit products;
* further development of the bank's cash management program for
commercial customers;
* promotion of the bank's consumer and home equity lines of
credit;
* the strategic promotion of the bank's retail offices in light
of continued consolidation of financial institutions in the
bank's market area;
* economic stability of the bank's market area as discussed
below; and
* continued population and business growth in the bank's market
area.
The funding for loan growth is further discussed under the
section on Liquidity.
It is anticipated that economic activity in the bank's market
area during the remainder of 2000 appears favorable due to
continued economic growth and construction activity and low
unemployment rates. The overall effects of 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 Loans.
Net Interest Income
Net interest income is the amount by which interest income on
loans and investments exceeds interest incurred on deposits and
other interest-bearing liabilities. Net interest income is Union
National's primary source of revenue. The amount of net interest
income is affected by changes in interest rates and by changes in
the volume and mix of interest-sensitive assets and liabilities.
For analytical and discussion purposes, net interest income and
corresponding yields are presented on a taxable equivalent basis.
Net interest income for the three months ended March 31, 2000,
increased by $69,000, or 2.6%, over the same period in 1999.
Average loan growth of $12,794,000 was funded by growth in
average deposits of $9,282,000 and by additional borrowings.
Average earning assets increased in the amount of $13,954,000 in
the aggregate over the same period in 1999. The volume growth in
earning assets and interest-bearing liabilities increased net
interest income by the amount of $110,000.
The overall interest rate on the average total earning assets for
the current period was 7.91%, which was comparable to the 7.90%
for the same period of last year. The
<PAGE>
overall interest rate on the average interest-bearing liabilities
increased to 4.22% for the current period, as compared to 4.09%
for the same period of last year. This was due to rising short-
and intermediate-term interest rates which are reflected in
higher rates on high-yield money market accounts, certificates of
deposit and short-term borrowings. In addition, due to rising
interest rates and the prohibitively high cost of long-term,
fixed-rate advances from the Federal Home Loan Bank of
Pittsburgh, the bank utilized additional short-term borrowings
during the first quarter of 2000. The net effect of all interest
rate fluctuations and funding changes was to decrease net
interest income in the amount of $41,000 for the current period
over the same period in 1999. See management's discussion below
concerning the anticipated impact of these interest rate
fluctuations on the results of operations for the remainder of
2000.
As referenced above, 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 Federal Home
Loan Bank. 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
March 31, 2000, the bank has received long-term advances of
$27,035,000 and short-term advances of $5,350,000 from its
available credit of $69,723,000 at the Federal Home Loan Bank for
purposes of funding loan demand and mortgage-backed security
purchases. The total advances had an effective rate of 5.80% at
March 31, 2000 with maturities ranging from overnight borrowings
to January 2010.
Commencing October 1998, the Federal Reserve Bank began loosening
the monetary supply, causing the prime interest rate to decrease
from 8.50% to 7.75%. The immediate impact of these short-term
interest rate decreases was to decrease interest rates on loans
and deposits that adjust according to short-term rate indexes and
to decrease reinvestment rates on investment securities and
renewing certificates of deposit. However, in June 1999, the
Federal Reserve Bank began tightening the monetary supply and the
prime interest rate was increased from 7.75% to 9.00% by March
2000. With these increases in interest rates, there also has
been an increase in the rates the bank must pay to attract and
retain deposits and must pay on maturing or repricing advances
from the Federal Home Loan Bank.
As a result of the general increase in interest rates, it is
currently anticipated that for the remainder of 2000, the bank's
net interest margin percentage will narrow in comparison to the
current net interest margin percentage and also in comparison to
the net interest margin percentage in the same period of 1999.
As an offset to the narrowing of the net interest margin
percentage, income from growth in earning assets during 1999 and
the first quarter of 2000, net of costs of growth in deposits and
borrowings, will increase the net interest margin for the
remainder of 2000. The netting of these two factors, as
reflected in the bank's current model and estimates as of March
31, 2000, may result in a net interest margin for the remainder
of 2000 that is currently expected to range from comparable to a
moderate increase over the net interest margin during the same
period of 1999. However, currently expected growth in earning
assets during the remainder of 2000 should increase the bank's
net interest margin. This growth is not reflected in the bank's
model at March 31, 2000. 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
2000, 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. See discussions on Liquidity and Market Risk - Interest
Rate Risk.
Provision for Loan Losses
The provision for loan losses was $51,000 for the three months
ended March 31, 2000, and $42,000 for the three months ended
March 31, 1999. Net charge-offs for the three months ended March
31, 2000, were $36,000 as compared to a net recovery of $9,000
for the same period of last year. The increase in the provision
over the same period of last year is primarily a result of the
increase in net charge-offs. Future
<PAGE>
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 three months ended March 31, 2000
was $383,000, representing an increase of $48,000, or 14.3%, over
the same period in 1999. Contributing to this increase were the
following items:
* additional earnings in monthly service charges in the amount
of $23,000, which were primarily a result of increases in monthly
service charges on noninterest bearing accounts effective May 1,
1999;
* additional earnings in insufficient funds charges in the
amount of $8,000;
* an increase in earnings from account analysis charges on
commercial deposit accounts in the amount of $9,000;
* an increase in income from trust and wealth management
services in the amount of $10,000; and
* increased usage of the bank's debit cards resulting in
additional earnings in interchange fee income in the amount of
$8,000.
The bank also currently 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 three months ended
March 31, 2000, increased by $236,000, or 12.7%, over the same
period in 1999. This noninterest expense increase is discussed
below as it pertains to the various expense categories.
Employee salaries and wages increased by $133,000, or 15.6%, over
the same period in 1999. This increase was essentially due to
annual merit and cost of living increases, planned staff
additions and the compensation impact of our new paid time off
program. New staff positions include a manager for our newly
developed Wealth Management Group, a chief lending officer, staff
for a new community office, a collections assistant, a credit
analyst and a database marketing specialist. See section
entitled Initiatives for 2000 for further discussion on these
staff additions and their impact to the operating results of
Union National.
Related fringe benefits increased by $44,000, or 21.1%, from the
same period in 1999. The increased expense is primarily a result
of increased employee benefit costs as a result of staff
additions and the addition of a short-term disability benefit for
employees.
Occupancy, furniture and equipment expenses for the three months
ended March 31, 2000, increased by $14,000, or 5.6%, from the
same period in 1999. This was due to an increase in lease
expense, repairs and maintenance costs and snow removal costs.
The increase in lease expense is a result of additional costs
relative to our new community office located on Locust Street in
Columbia.
Other operating expenses for the three months ended March 31,
2000, increased by $40,000, or 7.4%, over the same period in
1999. Contributing factors to the increase in other operating
expenses as compared to the same period in 1999 included the
following:
* an increase in staff training and seminar costs of $12,000;
* an increase in legal and professional fees of $15,000; and
* an increase in outside computer services of $18,000.
Expenditures in 2000 for professional fees included fees paid to
an electronic data processing consultant to assist in the
assessment of current system capabilities and alternatives and
fees paid to an independent company to perform internal audit
services.
Income Taxes
<PAGE>
Union National's income tax expense decreased by $60,000 for the
three months ended March 31, 2000, to $139,000 from $199,000 for
the same period in 1999. The effective tax rate was 17.1% for the
three months ended March 31, 2000, and 20.8% for the three months
ended March 31, 1999. The decrease in income tax expense was due
to lower pretax income and an increase in tax exempt income on
loans and securities in the first three months of 2000 as
compared to the same period of 1999. Currently, the effective
tax rate of Union National for the remaining months of 1999 is
expected to approximate the current effective tax rate.
INITIATIVES FOR 2000
____________________
During 2000, the bank is implementing various initiatives that
should impact the results of operations of Union National. In
January 2000, the bank added two key staff positions. First, the
bank added a chief lending officer who will lead our lending
efforts and assist in the overall management of credit quality in
the bank's loan portfolio. Management believes the addition of
this position should enhance the credit review process for new
loans and should further allow our loan and business development
officers to focus on their sales efforts. The bank also added a
manager to lead our newly developed Wealth Management Group. The
addition of this position will allow Union National to diversify
and grow our trust services with additional investment and asset
management services. It is anticipated that two additional staff
positions will be added to augment the efforts of our existing
trust department in the development of our Wealth Management
Group. These additions to staff are currently expected to reduce
results of operations for the remainder of 2000 by an estimated
amount of $130,000, net of tax, for salary and related benefit
costs. However, these additions to staff will also enable Union
National to enhance both interest income and fee income in 2000
and beyond.
In addition to the staff additions mentioned above, the bank is
anticipating that additional operational costs will be incurred
related to the establishment of the Wealth Management Group. The
bank has entered into a five year lease for office space in
Lancaster for the expansion of this department. Lease and other
operating costs are expected to reduce Union National's results
of operations by a currently estimated amount of $70,000.
However, it is anticipated that a significant part of these
expenses will be offset by fee income from additional customer
relationships generated by the staff at this location.
The bank also opened a community banking office at 401 Locust
Street in Columbia on April 17, 2000. The bank has entered into
an agreement to lease the facilities for a five-year period with
four renewal options that have terms of five years each.
Staffing costs, office costs and other general expenses are
expected to impact results of operations for the start-up and
operation of the office. These operating costs are currently
expected to reduce results of operations for the remainder of
2000 by an estimated amount of $115,000, net of tax. Management
anticipates that a significant part of these expenses will be
offset by interest and fee income generated from new customer
relationships at this location. The facility required some
renovations, furnishings and equipment, which cost approximately
$130,000.
In an effort to increase brand awareness for Union National
during 2000 there will be sign and other changes at our community
offices. The costs of sign changes are currently estimated at
$139,000, and the addition of these signs is expected to decrease
results of operations by $22,000 for the remainder of 2000, net
of tax, including the write-off of existing sign assets.
Union National has been evaluating its technology resources and
alternatives during 1999. A technology plan has been developed
and is expected to be implemented over the next two years. This
plan includes a voice-response unit, a marketing central
information file (MCIF) database system, a bank-wide network and
a change in our core data processing system. These system
enhancements will allow Union National to provide additional
services to customers, more effectively market our existing
products and significantly increase operational efficiencies. In
May 2000, the bank signed a letter of intent to use M&I Data
Services, Inc. to provide the core data processing system and
services needed by the bank. We are currently anticipating a
<PAGE>
conversion in November 2000. The systems implemented during 2000
are currently expected to reduce results of operations for the
remainder of 2000 by an estimated amount of $205,000, net of tax.
The implementation of these systems is currently expected to
require cash payments of $1,450,000 in 2000 for equipment,
software and various other products and services. Systems
changes may also materially impact the results of operations in
future years. However, systems changes and enhancements should
result in both increased revenue and cost savings to the bank.
Union National also will be developing and promoting several new
products in 2000. These products include a small business
checking account, an unsecured consumer line of credit and other
additions to our current product line. Management believes that
these new products will enhance results of operations for 2000.
See Stockholders' Equity section for further discussion on the
impact of the above items on the capital resources of Union
National in 2000.
Regulatory Activity
___________________
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 Union National and the bank.
On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act of 1999, which is also known as the
Financial Services Modernization Act. The act repeals some
Depression-era banking laws and permits banks, insurance
companies and securities firms to engage in each others'
businesses after complying with certain conditions and
regulations which are yet to be finalized. The act grants to
community banks the power to enter new financial markets as a
matter of right that larger institutions have managed to do on an
ad hoc basis. At this time, Union National is continuing to
assess the impact of and opportunities available in the Act, but
has no immediate plans to pursue these additional business
activities.
Union National does not believe that the Financial Services
Modernization Act will have an immediate positive or negative
material effect on its operations. However, the act may have the
result of increasing the amount of competition that Union
National faces from larger financial service companies, many of
whom have substantially more financial resources, which may now
offer banking services in addition to insurance and brokerage
services.
As a consequence of the extensive regulation of commercial
banking activities in the United States, Union National'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 discussed above, 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. However,
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 Union National's results of
operations.
Further, the business of Union National is 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.
The bank is routinely examined by the OCC and no material adverse
impact is anticipated on current or future operations and
financial position as a result of this process. The last
Community Reinvestment Act performance evaluation by the OCC
resulted in a "satisfactory" rating of the bank's record of
meeting the credit needs of its entire community.
<PAGE>
Changes in Accounting Standards
_______________________________
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. In addition, the transition provisions
of this Statement allow Union National to reclassify held to
maturity securities to an available for sale classification.
Union National does not expect the provisions of this Statement
to have a material effect on the liquidity, results of operations
or capital resources of Union National when it becomes effective.
The effective date of this pronouncement was delayed until the
first quarter of 2001 through the issuance of SFAS No. 137.
However, earlier application is permissible. Union National is
currently evaluating this statement and considering early
adoption in the second or third quarter of 2000. Early adoption
of the provisions of this statement would allow Union National to
reclassify securities that are currently classified as held to
maturity to an available for sale classification.
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
operations, 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 $2,189,000 to comply with their respective repayment
terms. This amount represents a slight increase from the amount
of $2,092,000 at December 31, 1999. 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 a portion of these loans will be classified as nonperforming
in the remaining months of 2000.
At March 31, 2000, total nonperforming assets amounted to
$1,964,000, or 1.1% of total net loans, as compared to a level of
$1,495,000, or .9%, at December 31, 1999. 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%.
Allowance for Loan Losses
_________________________
The allowance for loan losses is maintained at a level believed
adequate by management to absorb estimated probable loan losses.
Management is responsible for the adequacy of the allowance for
loan losses, which 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 Union National'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. After management's assessment, no adjustment to the
allowance for loan losses was necessary as a result of the Office
of Comptroller's most recent examination as of June 30, 1999.
<PAGE>
<TABLE>
SUPPORTING SCHEDULES
Schedule of Nonperforming Assets
________________________________
<CAPTION>
March 31, December 31,
(In Thousands) 2000 1999
_______________________________
<S> <C> <C>
Nonaccruing Loans $1,527 $1,343
Accrual Loans - 90 days or more
past due 379 132
Restructured Accrual Loans 0 0
Other Real Estate Owned 58 20
_______________________________
Total Nonperforming Assets $1,964 $1,495
===============================
Nonperforming Assets
as a % of Net Loans 1.1% 0.9%
===============================
Allowance for Loan Losses
as a % of Nonperforming Loans 94% 121%
===============================
</TABLE>
<TABLE>
Analysis of Allowance for Loan Losses
_____________________________________
<CAPTION>
Three Months Ended March 31,
(In Thousands) 2000 1999
________________________________
<S> <C> <C>
Average Total Loans Outstanding
(Less Unearned Income) $177,149 $164,355
===============================
Allowance for Loan Losses,
Beginning of Period $1,783 $1,743
Loans Charged-off During Period 40 17
Recoveries of Loans Previously
Charged-off 4 26
_______________________________
Net Loans Charged-off 36 (9)
Addition to Provision for Loan Losses
Charged to Operations 51 42
_______________________________
Allowance for Loan Losses,
End of Period $1,798 $1,794
===============================
Ratio of Net Loans Charged-off to Average
Loans Outstanding (Annualized) 0.08% -0.02%
===============================
Ratio of Allowance for Loan Losses to
Net Loans at End of Period 1.01% 1.07%
===============================
</TABLE>
<PAGE>
The allowance for loan losses increased by $15,000 for the three
months ended March 31, 2000, and the ratio of the allowance for
loan losses to net loans was 1.01% at March 31, 2000, as compared
to 1.02% at December 31, 1999. The increase in the allowance for
loan losses for the three month period was due primarily to an
increase in loans outstanding. Management believes, based on
information currently available, that the current allowance for
loan losses of $1,798,000 is adequate to meet potential loan
losses. As of October 1999, a review of selected portions of the
bank's loan portfolio was completed by an independent consultant.
This review included an evaluation of credit relationships
exceeding $400,000 and all loans on nonaccrual status, past due
90 days or more or on the bank's internal watchlist. At the
conclusion of the review, the consultant did not recommend that
management increase the allowance for loan losses. For 2000, it
is anticipated that an ongoing loan review will be performed on
selected portions of the loan portfolio by an independent
consultant.
Liquidity
__________
Union National'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.
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 Federal Home Loan Bank provides the Bank with
additional liquidity alternatives such as short- or long-term
funding on fixed- or variable-rate terms. The Bank has a maximum
funding capacity of up to $69,723,000 available at the Federal
Home Loan Bank. In order to provide funding for the Bank's loans
and investments, the Bank had outstanding borrowing from the
Federal Home Loan Bank of $32,385,000 at March 31,2000, and
$35,235,000 at December 31, 1999.
Market Risk - Interest Rate Risk
_________________________________
As a financial institution, Union National'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 Union National'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. Union National does not own any trading
assets. Union National 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 Federal Home Loan Bank 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
<PAGE>
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. While assumptions are developed based upon current
economic and local market conditions, management cannot make any
assurances as to the predictive nature of these assumptions.
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 are 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 decline in prevailing market interest rates over
a one-year period will have an unfavorable impact on the Bank's
net interest income over the next twelve months. This
unfavorable impact is currently estimated at $53,000, net of
taxes. A hypothetical two percent general rise in rates will
also have an unfavorable impact on net interest income over the
next twelve months. This unfavorable impact on net interest
income is currently estimated at $200,000, net of taxes. 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 three
months ended March 31, 2000, by the following:
* marketing its variable-rate home equity line of credit
(these outstanding loans increased by $287,000 for the
period);
* increasing its extensions of adjustable- and floating-rate
loans for new or refinanced commercial and agricultural
loans (these outstanding loans increased by $1,664,000 for
the period);
* managing and expanding the Bank's core deposit base
including deposits obtained in the Bank's commercial cash
management programs; and
* additions to or restructuring of adjustable- and fixed-rate
advances from the Federal Home Loan Bank, including convertible
advances.
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.
Stockholders' Equity
_____________________
Union National maintains capital ratios that are well above the
minimum total capital levels required by federal regulatory
authorities including the risk-based capital guidelines. The
bank's average stockholders' equity to average assets ratio,
which measures the adequacy of capital, was 8.54% as of March 31,
2000, as compared to 8.70% as of December 31, 1999. The decrease
in this capital ratio is primarily a result of growth in average
assets during the period and dividends paid by the bank to Union
National to fund the common stock repurchase plan discussed
below.
Items which could have a material impact on capital resources of
Union National for
<PAGE>
the remainder of 2000 include the opening of a community banking
office at 401 Locust Street in Columbia, plans to change signs at
our community banking offices, the implementation of various
systems in accordance with our technology plan and a contract in
the amount of $200,000 for the purchase of real estate. The
contract for the purchase of real estate is for land that is
expected to be used for the expansion of an existing community
banking office. The contract is subject to certain contingencies
that management currently expects to be met. There are no other
material commitments for capital expenditures as of March 31,
2000. There are no known trends or uncertainties, including
regulatory matters, that are expected to have material impact on
the capital resources of Union National for 2000, except as
discussed below concerning Union National's common stock
repurchase plan. In addition, see discussion on Regulatory
Activity.
On January 13, 2000, Union National announced that the Board of
Directors had authorized and approved a plan to purchase up to
50,000 shares of Union National'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 Union National 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 March 31, 2000, a total of 34,758
shares of common stock were repurchased under this plan at a cost
of $581,000. This amount was funded from consolidated earnings.
Union National and the Bank remain well capitalized and meet all
regulatory capital guidelines after the repurchase of the shares.
The Bank's risk-based capital ratios exceed regulatory
requirements. The risk-based capital guidelines require banks to
maintain a minimum risk-based capital ratio of 8.0% at March
31,2000, as compared to the Bank's current risk-based capital
ratio of 13.29%. 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 regulatory action. As of March 31, 2000, the
Bank was categorized as well capitalized. Management is not
aware of any conditions or events that would adversely affect the
Bank's capital. The Bank maintains the following leverage and
risk-based capital ratios:
<TABLE>
<CAPTION>
(In Thousands) March 31, December 31,
2000 1999
____________ _____________
S> <C> <C>
Tier I - Total Stockholders' Equity $ 22,988 $ 23,176
Tier II - Allowance for Loan Losses 1,798 1,783
____________ _____________
Total Qualifying Capital $ 24,786 $ 24,959
============ =============
Risk-adjusted On-balance-sheet Assets $175,051 $168,830
Risk-adjusted Off-balance-sheet Exposure 11,422 10,958
____________ _____________
Total Risk-adjusted Assets $186,473 $179,788
============ =============
Ratios:
Tier I Capital Ratio - Actual 8.54% 8.70%
Minimum Required 4.00 4.00
To Be Well Capitalized under Prompt
Corrective Action Provisions 5.00 5.00
Risk-based Capital Ratio:
Tier I Captial Ratio - Actual 12.33% 12.89%
Minimum Required 4.00 4.00
To Be Well Capitalized under Prompt
Corrective Action Provisions 6.00 6.00
Total Capital Ratio - Actual 13.29% 13.88%
Minimum Required 8.00 8.00
<PAGE>
To Be Well Capitalized under Prompt
Corrective Action Provisions 10.00 10.00
Total Risk-Based Capital in Excess of the
Minimum Regulatory Requirement $ 9,868 $ 10,576
============ =============
</TABLE>
<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
Union National. There are no proceedings pending other than the
ordinary routine litigation incident to the business of Union
National and its subsidiary, Union National Community Bank. In
addition, no material proceedings are pending or are known to be
threatened or contemplated against Union National 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 26, 2000, at The Gathering Place, 6 Pine Street, Mount Joy,
Pennsylvania, 17552.
(b) - (c) The following matters were voted upon:
Three Class A directors were elected, as follows:
Votes * Votes *
cast cast Votes *
Reelected Term Expires "For" "Against" "Abstained"
________________ _____________ _________ _______ _________
Franklin R. Eichler 2003 1,964,645 7,686 2,112
Mark D. Gainer 2003 1,964,960 7,371 2,112
Darwin A. Nissley 2003 1,971,460 871 2,112
Directors whose term continued after the meeting:
Class B Directors
Daniel C. Gohn 2001
Carl R. Hallgren 2001
David G. Heisey 2001
Daniel H. Raffensperger 2001
Class C Directors
Donald H. Wolgemuth 2002
William E. Eby 2002
William D. Linkous 2002
Benjamin W. Piersol, Jr.2002
* Information of shares voted does not reflect the 5% stock
dividend declared by the Corporation's board of directors on
April 13, 2000, payable on May 19, 2000, to stockholders of
record on May 2, 2000.
(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
March 31, 2000.
(b) Reports on Form 8-K
Union National filed a report on form 8-K via EDGAR
dated April 10, 2000.
<PAGE>
The report was filed pursuant to Item 4, Changes in Registrant's
Certifying Accountant, and reported that Trout, Ebersole, &
Groff, LLP had declined to be reappointed as the Registrant's
independent public accountant. As noted in that filing, during
the last two most recent fiscal years and interim periods, there
have been no disagreements with Trout, Ebersole, & Groff, LLP on
matters of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure. Included
with the filing as an exhibit was a copy of Trout, Ebersole, &
Groff, LLP's letter directed to the Securities and Exchange
Commission regarding their declining reappointment as the
Registrant's independent public accountant.
Union National filed a second report on form 8-K via EDGAR dated
April 27, 2000. The report was filed pursuant to Item 4,
Changes in Registrant's Certifying Accountant and reported that
the Registrant engaged Beard & Company, Inc. as its independent
public accountant.
<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/ Mark D. Gainer
___________________________
Mark D. Gainer
President & CEO
(Principal Executive
Officer)
Date: May 15, 2000
By /s/ Clement M. Hoober
__________________________
Clement M. Hoober
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: May 15, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 5272
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 51842
<INVESTMENTS-CARRYING> 28143
<INVESTMENTS-MARKET> 27191
<LOANS> 178553
<ALLOWANCE> 1798
<TOTAL-ASSETS> 271666
<DEPOSITS> 214322
<SHORT-TERM> 5826
<LIABILITIES-OTHER> 1618
<LONG-TERM> 27035
0
0
<COMMON> 689
<OTHER-SE> 22176
<TOTAL-LIABILITIES-AND-EQUITY> 271666
<INTEREST-LOAN> 3708
<INTEREST-INVEST> 1219
<INTEREST-OTHER> 4
<INTEREST-TOTAL> 4931
<INTEREST-DEPOSIT> 1880
<INTEREST-EXPENSE> 2355
<INTEREST-INCOME-NET> 2576
<LOAN-LOSSES> 51
<SECURITIES-GAINS> (5)
<EXPENSE-OTHER> 2094
<INCOME-PRETAX> 814
<INCOME-PRE-EXTRAORDINARY> 814
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 675
<EPS-BASIC> .26
<EPS-DILUTED> .26
<YIELD-ACTUAL> 4.28
<LOANS-NON> 1527
<LOANS-PAST> 379
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2189
<ALLOWANCE-OPEN> 1783
<CHARGE-OFFS> 40
<RECOVERIES> 4
<ALLOWANCE-CLOSE> 1798
<ALLOWANCE-DOMESTIC> 1798
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 547
</TABLE>
