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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [No Fee Required]
For the quarterly period ended September 30, 1998 or
[ ]TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [No Fee Required]
For the transition period from to
Commission file number 0-27590
SECURITY BANK HOLDING COMPANY
(Exact name of small business issuer as specified in its charter)
Oregon 93-0800253.
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
170 S. Second St., Coos Bay, Oregon 97420.
(Address of Principal Executive Offices) (Zip Code)
(541) 267-5356
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES X NO
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Class Outstanding at October 21, 1998
Common Stock, $5.00 par value 4,451,056
Transitional Small Business Disclosure Format (check one): YES NO X
========================================================================
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
SECURITY BANK HOLDING COMPANY & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(Unaudited)
ASSETS Sept. 30, 1998 Dec. 31, 1997
- ------ -------------- -------------
<S> <C> <C>
Cash and cash equivalents:
Cash and due from banks $11,487 $10,087
Federal funds sold 24,526 19,165
------- -------
Total cash and cash equivalents 36,013 29,252
Investment securities available for sale 82,857 86,130
Loans, net 137,473 136,035
Mortgage loans held for sale, at cost which approximates market 2,545 2,208
Net investment in direct financing leases 2,991 3,056
Premises and equipment, net 8,863 7,111
Federal Home Loan Bank stock, at cost 1,969 1,840
Federal Reserve Bank stock, at cost 483 --
Other assets 7,192 4,600
----- -----
Total assets $280,386 $270,232
-------- --------
LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS' EQUITY
- -------------------------------------------------------
Liabilities:
Deposits:
Demand $45,469 $31,550
NOW accounts 32,528 36,597
Money market accounts 37,816 37,074
Savings accounts 21,221 20,079
Time deposit 87,418 88,541
------ ------
Total deposits 224,452 213,841
Securities sold under agreements to repurchase 8,881 7,945
Short term borrowings 207 583
Federal Home Loan Bank borrowings 13,000 16,000
Other liabilities 3,239 2,532
----- -----
Total liabilities 249,779 240,901
------- -------
Minority interest in subsidiary 949 908
Shareholders' equity:
Nonvoting preferred stock, $5 par value.
Authorized 5,000,000 shares; none issued -- --
Voting preferred stock, $5 par value.
Authorized 5,000,000 shares; none issued -- --
Common stock, $5 par value.
Authorized 10,000,000 shares - issued and outstanding
4,451,056 shares in 1998 (4,442,097 shares in 1997) 22,255 22,210
Surplus 1,998 1,596
Retained earnings 5,989 5,629
Unearned ESOP shares at cost (1,267) (1,469)
Accumulated other comprehensive income 683 457
--- ---
Total shareholders' equity 29,658 28,423
------ ------
Total liabilities, minority interest and shareholders' equity $280,386 $270,232
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
SECURITY BANK HOLDING COMPANY & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED - DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
--------- ---------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Interest on loans $3,369 $3,338 $10,007 $9,525
Interest and dividends on securities:
Taxable 1,003 1,258 3,097 3,918
Exempt from Federal income tax 223 278 610 789
Interest on time deposits-domestic financial institutions -- -- -- 5
Dividend income on Federal Home Loan Bank stock 36 64 112 160
Dividend income on Federal Reserve Bank stock 7 -- 7 --
Interest on Federal funds sold 359 197 928 261
Income on direct financing leases 78 75 218 219
-- -- --- ---
Total interest income 5,075 5,210 14,979 14,877
----- ----- ------ ------
Interest expense:
Deposits
NOW 126 87 361 249
Money market 343 322 967 920
Savings 136 134 379 384
Time 1,179 1,134 3,521 3,300
Securities sold under agreements to repurchase 94 76 255 204
Short term borrowings 6 5 17 17
Federal Home Loan Bank borrowings 206 434 645 1,113
--- --- --- -----
Total interest expense 2,090 2,192 6,145 6,187
----- ----- ----- -----
Net interest income 2,985 3,018 8,834 8,690
Provision for loan losses 68 31 192 212
-- -- --- ---
Net interest income after provision for loan losses 2,917 2,987 8,642 8,478
----- ----- ----- -----
Other income:
Service charges on deposit accounts 322 273 893 844
Gain(loss) on sale/call of investments available for sale, net 4 186 9 188
Loan servicing fees 65 60 188 187
Sold real estate loan fees 644 385 1,881 972
Other 237 365 629 746
--- --- --- ---
Total other income 1,272 1,269 3,600 2,937
----- ----- ----- -----
Other expense:
Salaries and employee benefits 1,677 1,456 5,113 4,397
Occupancy of bank premises 201 172 596 497
Furniture and equipment 257 214 716 645
Professional fees 162 336 559 632
FDIC assessment 6 6 19 17
Supplies 103 73 272 261
ESOP compensation 68 70 403 210
Other 487 740 1,516 1,613
--- --- ----- -----
Total other expense 2,961 3,067 9,194 8,272
----- ----- ----- -----
Income before provision for income taxes 1,228 1,189 3,048 3,143
Provision for income taxes 373 362 1,022 1,004
Net income before minority interest 855 827 2,026 2,139
Net (income) loss attributable to minority interest (20) -- (41) 17
---- --- ---- --
Net income $835 $827 $1,985 $2,156
==== ==== ====== ======
Net income per share - basic $.21 $.21 $.49 $.54
==== ==== ==== ====
Net income per share - diluted $.21 $.21 $.49 $.54
==== ==== ==== ====
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
SECURITY BANK HOLDING COMPANY & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED - DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
--------- ---------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $835 $827 $1,985 $2,156
Other comprehensive income, net of income tax:
Unrealized (loss) gain on investment securities 257 152 226 268
--- --- --- ---
Comprehensive income $1,092 $979 $2,211 $2,424
====== ==== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
SECURITY BANK HOLDING COMPANY & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Nine months ended Sept. 30,
1998 1997
---- ----
<S> <C> <C>
Cash flows provided by operating activities:
Net income $1,985 $2,156
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 611 475
Provision for loan losses 192 211
Origination of mortgage loans held for sale (83,262) (38,249)
Proceeds from mortgage loans sold 82,925 38,704
Net gain on sale of fixed assets -- (177)
Net gain on call of investment securities available for sale (4) (3)
Net gain on sale of investment securities available for sale (4) (185)
Federal Home Loan Bank stock dividend (108) (160)
ESOP related compensation expense 577 296
Increase in other assets (2,592) 925
Increase in other liabilities 583 232
--- ---
Net cash provided by operating activities 903 4,225
--- -----
Cash flows from investing activities:
Net decrease in time deposits-domestic financial institutions -- 270
Purchase of investment securities available for sale (28,013) (28,029)
Proceeds from sale of investment securities available for sale 5,015 22,506
Proceeds from maturities and call of investment securities available for sale 26,546 17,222
Net loan payments (originations) (936) (10,130)
Purchase of participations (694) (3,899)
Additions to premises and equipment (2,280) (1,741)
Purchase of Federal Home Loan Bank stock (21) (3,192)
Purchase of Federal Reserve Bank stock (483) --
Redemption of Federal Home Loan Bank stock -- 2,769
Proceeds from sale of premises and equipment -- 189
Originations of direct financing leases (599) (1,240)
Gross payments on direct financing leases 664 1,001
Minority interest in subsidiary 41 (17)
-- ----
Net cash used in investing activities (760) (4,291)
----- -------
Cash flows from financing activities:
Net increase in deposits 10,611 17,323
Increase in securities sold with agreements to repurchase 936 2,540
(Decrease) increase of Federal Home Loan Bank borrowings (3,000) 8,411
Proceeds from issuance of common stock 72 64
Payment of dividends (1,625) (825)
Other (376) 35
----- --
Net cash provided by financing activities 6,618 27,548
----- ------
Net increase in cash and cash equivalents 6,761 27,482
Cash and cash equivalents at beginning of period 29,252 12,609
------ ------
Cash and cash equivalents at end of period $36,013 $40,091
------- -------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $6,123 $6,068
Income taxes $934 $1,089
Supplemental disclosures of investing activities:
Unrealized gain on investment
Securities available for sale, net of tax $226 $268
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
SECURITY BANK HOLDING COMPANY & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF FINANCIAL STATEMENT PREPARATION
The accompanying consolidated financial statements include the accounts of
Security Bank Holding Company, its wholly-owned subsidiaries Security Bank,
Pacific State Bank and Family Security Bank, as well as its majority-owned
subsidiary Lincoln Security Bank. All entities are collectively referred to
herein as the Company. All intercompany transactions and balances have been
eliminated in consolidation.
The interim financial statements have been prepared by the Company without
audit and in conformity with generally accepted accounting principles for
interim financial information. Accordingly, certain financial information and
footnotes have been omitted or condensed. In the opinion of management, the
consolidated financial statements include all necessary adjustments (which are
of a normal and recurring nature) for the fair presentation of the results of
the interim periods presented. These financial statements should be read in
conjunction with the Company's audited consolidated financial statements for
the year ended December 31, 1997 included as part of the Company's 1997 annual
report to shareholders. The results of operations for the interim period shown
in this report are not necessarily indicative of results for any future interim
period or the entire fiscal year.
2. USE OF ESTIMATES
The preparation of financial statements, in conformity with generally accepted
accounting principles, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expense during the reporting period.
Actual results could differ from those estimates.
3. EARNINGS PER SHARE
Basic and diluted net income per share are based on the weighted average number
of common shares outstanding during each period, with diluted including the
effect of potentially dilutive common shares. For the quarter and nine months
ended September 30, 1998 and 1997, the weighted average number of common shares
outstanding did not include 384,784 and 455,824 shares respectively, held by
the Company's ESOP as these shares have not been allocated to participant
accounts, nor have they been committed to be released. As of September 30,
1998, 5,000 stock options issued are at a strike price in excess of the current
market prices. The following table presents information relating to the
weighted average number of common shares outstanding for all periods presented
for both basic and diluted net income per share calculations:
<TABLE>
<CAPTION>
Three months ended Sept. 30, Nine months ended Sept. 30,
---------------------------- ---------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average shares - basic 4,066,270 3,976,804 4,063,304 3,976,804
Potential dilution of stock options 29,197 42,448 31,726 42,448
------ ------ ------ ------
Weighted average shares - diluted 4,095,467 4,019,252 4,095,030 4,019,252
========= ========= ========= =========
</TABLE>
<PAGE>
4. NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. The statement
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. The Statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. A
company must also implement the Statement as of the beginning of any fiscal
quarter after issuance (that is, fiscal quarters beginning June 16, 1998 and
thereafter). Statement 133 cannot be applied retroactively. SFAS No. 133 must
be applied to (a) derivative instruments and (b) certain derivative instruments
embedded in hybrid contracts that were issued, acquired, or substantively
modified after December 31, 1997 (and, at the company's election, before
January 1, 1998).
The implementation of this statement is not anticipated to have a material
effect on the Company's financial position or net income.
5. RECLASSIFICATIONS
Certain amounts previously recorded on the December 31, 1997 and September 30,
1997 consolidated financial statements have been reclassified to conform to the
classifications on the September 30, 1998 consolidated financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion of the Company's consolidated financial condition and
results of operations should be read in conjunction with the selected
consolidated financial and other data, the consolidated financial statements,
and related notes to the consolidated financial statements. In addition to
historical information, this quarterly report contains certain forward looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995 (PSLRA). This statement is included for the express purpose of
availing the Company of the protections of the safe harbor provisions of the
PSLRA. The forward looking statements contained in this report are subject to
factors, risks, and uncertainties that may cause actual results to differ
materially from those projected. Important factors that might cause such a
material difference include, but are not limited to, those discussed in this
section of the report. In addition, the following items are among the factors
that could cause actual results to differ materially from the forward looking
statements in this report: general economic conditions, including their impact
on capital expenditures; business conditions in the banking industry; the
regulatory environment; new legislation; rapidly changing technology and
evolving banking industry standards; competitive standards; competitive
factors, including increased competition with community, regional and national
financial institutions; fluctuating interest rate environments; and similar
matters. Readers are cautioned not to place undue reliance on these forward
looking statements, which reflect Management's analysis only as of the date of
the statement. The Company 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 this and other documents the Company files from time to
time with the Securities and Exchange Commission.
RESULTS OF OPERATIONS - FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
NET INCOME. Net income increased 1% to $835,000 for the three months ended
September 30, 1998 from $827,000 for the same period in 1997. The increase in
net income is mostly attributable to a decrease in other expense.
<PAGE>
NET INTEREST INCOME. Net interest income is the difference between interest
income (principally from loans and investment securities) and interest expense
(principally on customer deposits and borrowings). Changes in net interest
income result from changes in volume, net interest spread, and net interest
margin. Volume refers to the average dollar level of interest earning assets
and interest bearing liabilities. Net interest spread refers to the
differences between the average yield on interest earning assets and the
average cost of interest bearing liabilities. Net interest margin refers to
net interest income divided by average interest earning assets and interest
bearing liabilities. The Company's profitability, like that of many financial
institutions, is dependent to a large extent upon net interest income. Since
the Company tends to be asset sensitive, as interest earning assets mature or
reprice more quickly than interest bearing liabilities in a given period, a
significant decrease in the market rates of interest could adversely affect net
interest income. In contracts, an increasing interest rate environment could
favorably impact net interest income. Competition, the economy, and the status
of the interest rate environment also impact the Company's net interest income
in any period.
Net interest income before the provision for loan loss decreased $33,000 or 1%
for the three months ended September 30, 1998 over the same period in 1997. Of
the net decrease of $33,000, an increase in volume accounted for an increase in
net interest income of $182,000, while a decrease in spread accounted for a
decrease in net interest income of $215,000. Average interest earning assets
increased $0.8 million, while average interest bearing liabilities increased
$1.9 million. The increase in average interest earning assets and interest
bearing liabilities resulted from an increase in deposits, offset by a decrease
in borrowings from the Federal Home Loan Bank of $15.8 million.
The average net interest spread decreased from 4.86% to 4.76%, mainly due to
decreased average earning asset yields which declined 28 basis points from
8.44% to 8.16%. The low/flat interest rate yield curve has caused variable
rate repricing on assets over the period decreasing asset yields. In addition,
certain fixed rate loans and investments have refinanced at the lower rates
over the period. Average rates paid decreased 19 basis points to 3.39% in the
third quarter of 1998 from 3.58% for the same period in 1997, primarily from a
reduction in borrowings with the Federal Home Loan Bank. The Company's net
interest margin for the third quarter of 1998 was 4.83%, a decrease of 10 basis
points from 4.93% for the same period in 1997. The Company expects to see
further declines in its net interest margin due to continued anticipated
refinance activity caused by the low interest rate environment and continued
competition in the markets it serves. The following table presents information
regarding annualized yields on interest-earning assets and interest bearing
liabilities, as well as the net interest spread and net interest margin for the
period. Interest earned on non-taxable securities has been computed on a 34%
tax equivalent basis.
Three months ended Sept. 30,
----------------------------
1998 1997
---- ----
Average yields earned 8.16% 8.44%
Average rates paid 3.39% 3.58%
Net interest spread 4.76% 4.86%
Net interest margin 4.83% 4.93%
PROVISION FOR LOAN LOSSES. Management's policy is to maintain an adequate
allowance for loan loss based on historical trends, current economic forecasts,
statistical analysis of the loan portfolio, as well as detailed review of
individual loans and current loan performance. The loan loss provision during
the three month period ended September 30, 1998, was $68,000 and $31,000 for
the same period in 1997. Net charge-offs during the three month periods were
$29,000 and $18,000 for 1998 and 1997, respectively.
The reserve for loan losses was $1,428,000 at September 30 1998, as compared to
$1,415,000 at September 30 1997. The Company's ratio of reserve for loan
losses to total loans was .99% at September 30, 1998, compared to 1.03% at
September 30, 1997. Non-performing assets (defined as loans on non-accrual
status, 90 days or more past due, and other real estate owned) were $605,000
and $937,000 at September 30, 1998 and 1997, respectively. Management believes
the loans are adequately secured and that no significant losses will be
incurred.
Management has in place a comprehensive loan approval process and an asset
quality monitoring system. Management continues its efforts to collect
accounts previously charged off and to originate loans of high quality.
Management believes the reserve for loan loss at September 30, 1998 was
adequate to absorb potential loss exposure in the portfolio. Further additions
to the reserve for loan loss could become necessary, depending upon the
performance of the Company's loan portfolio or changes in economic conditions,
as well as growth within the loan portfolio and results of examinations by
regulators and auditors.
<PAGE>
OTHER INCOME. Other income remained stable at $1,272,000 for the three months
ended September 30, 1998 as compared to $1,269,000 for the same period in 1997.
Service charges on deposit accounts increased $50,000, or 18%, as overall
deposit levels have increased. Gain on sale of investment securities has
decreased from the same period in 1997, resulting from non-recurring gains the
Company had on restructuring the investment portfolio in the third quarter of
1997. Sold real estate loan fees have increased $258,000, or 67% from the same
period in 1997, resulting from increased refinancing activity with the overall
lower interest rate environment and expansion of the Company's mortgage
operations. Other income has decreased $128,000, or 35% from the same period
in 1997, resulting from a non-recurring gain on sale of building in 1997 of
$180,000.
OTHER EXPENSE. Other expense (including ESOP Compensation expense as
discussed below) decreased 3.5% to $2,961,000 for the three months ended
September 30, 1998 compared to $3,067,000 for the same period in 1997.
Salaries and employee benefits, the largest non-interest expense, increased
$221,000 or 15.2%. Approximately $86,000 of the increase in salaries is
related to increased mortgage operations, which resulted in $256,000 increased
sold loan fee income. The remainder of the increase results primarily from
expansion activities.
Professional fees decreased 52% to $162,000 for the third quarter of 1998, as
compared to $336,000 for the third quarter of 1997, resulting from the non-
recurring merger costs incurred in 1997 related to the Pacific State Bank
acquisition.
Given the increase in refinance activity as discussed previously, the Company
experienced a $40,000 increase in early payoffs on mortgage servicing rights,
which is reflected as a component of other expense.
ESOP COMPENSATION EXPENSE. The Company sponsors an Employee Stock Ownership
Plan (ESOP), a leveraged employee-retirement benefit plan which owns
approximately 22% of the common stock of the Company.
The ESOP owns 964,504 shares of the Company's common stock, of which 579,720
are allocated to plan participants. The remaining 384,784 shares are
unallocated, and will be allocated over the remaining debt service period. The
current ESOP debt of $1,858,000 is to be extinguished over the next six years,
ending in 2003. As the debt is paid, shares are released for allocation. The
release of shares is comprised of shares released through dividends on
allocated shares, and shares released through compensation expense (a non-cash
charge to the income statement). Compensation expense is calculated by
multiplying the shares released as compensation by the average share price of
the Company's common stock for the year. Two components of shareholders'
equity are also affected. There is a reduction in unearned ESOP shares at
cost, and an increase in surplus at the difference between the fair market
value and the cost of the shares, thereby off-setting the compensation expense
and resulting in no impact on shareholders' equity. As shares are released,
they are considered outstanding for the purposes of calculating earnings per
share and book value per share.
In 1997, the average share price was $12.14, a 47% increase over the average
price in 1996 of $8.24. This significant price appreciation has caused the
compensation charge to increase proportionately, well beyond the originally
planned 7% of eligible salaries. The resulting non-cash charge to earnings for
the fiscal year 1997 of $716 represented 22% of eligible salaries, and the
charge in 1996 of $459 was 17% of eligible salaries.
Because of the growing impact on the Company's earnings, in 1997, the Company
requested a Private Letter Ruling (PLR) from the Internal Revenue Service (IRS)
to extend the repayment of the debt, thereby reducing the number of shares
being released each year. This would return the retirement benefit to the
originally planned levels. In the third quarter of 1997, the Company had
accrued ESOP compensation expense assuming the PLR would be received, at
$70,000.
<PAGE>
In December 1997, the Company received a preliminary response from the IRS
indicating that it would not be ruling in favor of the PLR request. After
further discussion with the IRS in January 1998, the IRS removed the
preliminary decline status pending development of guidelines concerning debt
extension requests. As of September 30, 1998 the IRS has not issued these
guidelines. As such, the Company has accrued ESOP compensation expense for the
third quarter of 1998 in accordance with the existing ESOP debt structure.
At this time, the Company is aware of three possible scenarios regarding the
timing of the release of the remaining unallocated shares, as follows:
Option 1. Follow the current debt amortization, the remaining unallocated
shares will be released over the next six years,
Option 2. Upon notification of a favorable PLR, extend the debt four years
and release the remaining unallocated shares over the next ten years.
Note the actual extension period and number of shares released would
be dependent upon the provisions allowed by the IRS, or
Option 3. Shorten the ESOP tax year, permitting the Company to accelerate
the debt and release all remaining unallocated shares during 1998.
The following table presents the release of the remaining unallocated shares
under the three possible options under consideration by the Company:
Year Option 1 Option 2 Option 3
---- -------- -------- --------
1998 ................. 71,910 47,520 384,784
1999 ................. 74,675 41,839 ---
2000 ................. 53,823 40,766 ---
2001 ................. 57,334 40,359 ---
2002 ................. 61,489 39,117 ---
2003 ................. 65,553 37,821 ---
2004 ................. --- 35,024 ---
2005 ................. --- 35,891 ---
2006 ................. --- 35,090 ---
2007 ................. --- 31,357 ---
----- ------ -----
Total ................. 384,784 384,784 384,784
======= ======= =======
If the PLR is approved by the IRS, the Company would likely revise the debt
repayment schedule as described in Option 2. The Company may consider Option 3
to lower the burden of compensation expense for future years. Option 3 may be
considered regardless of the outcome of the PLR request and regardless of any
subsequent debt extension. If Option 3 were selected, a non-recurring non-cash
charge would be incurred in 1998, which would substantially lower earnings and
may result in a loss for the year. Because the expense is based on the average
market value of the Company's common stock for the year, it is not possible to
accurately determine the final amount of charge if Option 3 were followed.
However, no final response has been received regarding the PLR and the Company
has made no determination other than to currently accrue compensation expense
in accordance with Option 1, resulting in an expense for the quarter of
$68,000.
<PAGE>
RESULTS OF OPERATIONS - FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
NET INCOME. Net income decreased to $1,985,000 for the nine months ended
September 30, 1998 from $2,156,000 for the same period of 1997, a 7.9%
decrease. The decrease in net income is mostly attributable to an increase in
other expense incurred in conjunction with the Company's expansion strategy.
NET INTEREST INCOME. Net interest income before the provision for loan loss
increased $144,000 or 1.7% for the nine months ended September 30, 1998 over
the same period in 1997. Of the net increase of $144,000, an increase in
volume accounted for an increase in net interest income of $657,000, while a
decrease in spread accounted for a decrease in net interest income of $513,000.
Average interest earning assets increased $7.2 million, while average costing
liabilities increased $7.7 million. The increase in average interest earning
assets and interest bearing liabilities resulted from increased deposits offset
by a decrease in borrowings from the Federal Home Loan Bank of $11.4 million.
The average net interest spread decreased from 4.92% to 4.80%, mainly due to
decreased average earning asset yields which declined 24 basis points from
8.48% to 8.24%. The low/flat interest rate yield curve has caused variable
rate repricing on assets over the period decreasing asset yields. In addition,
certain fixed rate loans and investments have refinanced at the lower rates
over the period. Average rates paid decreased 12 basis points to 3.44% from
3.56% for the same period in 1997, primarily from a reduction in borrowings
with the Federal Home Loan Bank. The Company's net interest margin was 4.89%,
a decrease of 10 basis points from 4.99% for the same period in 1997. The
Company expects to see further declines in its net interest margin due to
continued anticipated refinance activity caused by the low interest rate
environment and continued competition in the markets it serves. The following
table presents information regarding annualized yields on interest-earning
assets and interest bearing liabilities, as well as the net interest spread and
net interest margin for the period. Interest earned on non-taxable securities
has been computed on a 34% tax equivalent basis.
Nine months ended Sept. 30,
--------------------------
1998 1997
---- ----
Average yields earned 8.24% 8.48%
Average rates paid 3.44% 3.56%
Net interest spread 4.80% 4.92%
Net interest margin 4.89% 4.99%
PROVISION FOR LOAN LOSSES. The loan loss provision during the nine month
period ended September 30, 1998, was $192,000 and $212,000 for the same period
in 1997. Net charge-offs during the nine month periods were $193,000 and
$132,000 for 1998 and 1997, respectively.
OTHER INCOME. Other income increased 22.6% to $3,600,000 for the nine months
ended September 30 1998 as compared to $2,937,000 for the same period in 1997.
Service charges on deposit accounts increased $49,000, or 6%, as overall
deposit levels have increased. Gain on sale of investment securities has
decreased from the same period in 1997, resulting from non-recurring gains the
Company had on restructuring the investment portfolio in the third quarter of
1997. Sold real estate loan fees have increased $909,000, or 94% from the same
period in 1997, resulting from increased refinancing activity with the overall
lower interest rate environment and expansion of the Company's mortgage
operations. Other income has decreased $117,000, or 16% from the same period
in 1997, resulting from a non-recurring gain on sale of building in 1997 of
$180,000.
<PAGE>
OTHER EXPENSE. Other expense (including ESOP Compensation expense as
discussed below) increased 11.1% to $9,194,000 for the nine months ended
September 30, 1998 compared to $8,272,000 for the same period in 1997.
Salaries and employee benefits, the largest non-interest expense, increased
$716,000 or 16%. Approximately $373,000 of the increase in salaries is related
to increased mortgage operations, which resulted in $909,000 increased sold
loan fee income. The remainder of the increase results primarily from
expansion activities.
Professional fees decreased 12% to $559,000 for 1998, as compared to $632,000
for 1997, resulting from the non-recurring merger costs incurred in 1997
related to the Pacific State Bank acquisition.
Given the increase in refinance activity as discussed above, the Company
experienced a $131,000 increase in early payoffs on mortgage servicing rights,
which is reflected as a component of other expense.
ESOP COMPENSATION EXPENSE. In the first nine months of 1997, the Company had
accrued ESOP compensation expense at $210,000 assuming the PLR (discussed
previously) would be received. The Company has accrued ESOP compensation
expense for the nine months ended September 30, 1998 in accordance with the
existing ESOP debt structure, resulting in expense of $403,000.
FINANCIAL CONDITION
Total assets have increased $10.2 million to $280.4 million at September 30,
1998, from $270.2 million at December 31, 1997, resulting from an increase in
deposits of $10.6 million, offset by a decrease in borrowings with the Federal
Home Loan Bank of $3.0 million. Net loans and leases increased $1.7 million to
$143.0 million at September 30, 1998, from $141.3 million at December 31,1997.
The low interest rate environment has resulted in increased calls on callable
agency investment securities, and has accelerated repayments on mortgage backed
investment securities. Due to the flat yield curve, the Company has taken a
defensive posture and retained the majority of these funds in Federal funds
sold, resulting in the increase of $5.4 million from December 31, 1997. At the
time a more typical positive slope to the yield curve occurs, the Company will
increase the maturities. Until that time, the Company does not believe
extending maturities is adequately rewarding.
The increase in premises and equipment during the first nine months of 1998
results from expansion activities underway by the Company. An increase of
$375,000 represents a land purchase for the planned de novo expansion of a
McKenzie State Bank in Springfield, Oregon. The remaining additions represent
costs incurred for the construction of two new branches of Security Bank in
Coos County.
Deposit growth has continued for the first nine months of 1998, increasing
$10.7 million to $224.5 million at September 30, 1998, compared to $213.8
million at December 31, 1997. The growth in 1998 has been predominantly in
non-interest bearing demand deposits. The ratio of interest-bearing deposits
to total deposits decreased from 85.2% at December 31, 1997, to 79.7% at
September 30, 1998.
The Company is a member of the Federal Home Loan Bank of Seattle. This
membership allows the Company access to low cost, long-term funding otherwise
unavailable. Since December 31, 1997, the Company has not utilized this
funding, and repaid a $2.0 million and $1.0 million advance in the first and
third quarter of 1998, respectively, leaving the balance at $13 million as of
September 30, 1998.
<PAGE>
LIQUIDITY
Liquidity enables the Company to meet the withdrawals of its depositors and the
borrowing needs of its loan customers. The Company's primary sources of funds
are customer deposits, maturities of investment securities, sales of Available
for Sale securities, loan sales, loan repayments, net income, advances from
the Federal Home Loan Bank of Seattle, and the use of Federal Funds markets.
The Company maintains three unsecured lines of credit totaling $11.0 million
for the purchase of funds on an overnight basis. As discussed above, the
Company is also a member of the Federal Home loan Bank which provides a secured
line of credit in the amount of $50.7 million, and other funding opportunities
for liquidity and asset/liability matching. Over the past four years these
lines have been used periodically. As of September 30, 1998 no funds were
borrowed under the Company's unsecured lines of credit and $13 million was
borrowed from the Federal Home Loan Bank. Interest rates charged on the lines
are determined by market factors. The Company's liquidity has been stable and
adequate over the past several years. Short-term deposits have continued to
grow and excess investable cash is invested on a short term basis into Federal
funds sold. The Company's primary source of funds is consumer deposits and
commercial accounts. These funds are not subject to significant movements as a
result of changing interest rates and other economic factors, and therefore
enhance the Company's long term liquidity.
CAPITAL RESOURCES
Beginning in 1990, federal regulators required the calculation of Risk-based
Capital. This is an analysis that weights balance sheet and off-balance sheet
items for their inherent risk. It requires minimum standards for Risk-based
Capital by Capital Tier. Full implementation of this analysis was required in
1992, requiring a minimum total Risk-based Capital ratio of 8.00%, a minimum
Tier 1 Capital Ratio of 4.00% and a minimum Leverage Capital Ratio of 3.00%.
At September 30, 1998, the Company's estimated regulatory capital ratios were
as follows: Total Risk-based Capital Ratio of 17.27%, Tier 1 Capital Ratio of
16.47% and Leverage Capital Ratio of 10.80%. This was compared to 17.40%,
16.56% and 10.11% for total Risk-based Capital Ratio, Tier 1 Capital Ratio and
Leverage Capital Ratio, respectively, at December 31, 1997. The Company
currently exceeds the regulatory capital minimum requirements. If the Company
were fully leveraged, further growth would be restricted to the level
attainable through generation and retention of net income unless the Company
were to seek additional capital from outside sources.
YEAR 2000 ISSUES
INTRODUCTION. The Year 2000 creates challenges with respect to the automated
systems used by financial institutions and other companies. Many software
programs are not able to recognize the year 2000, since most programs and
systems were designed to store calendar years in the 1900's by assuming the
"19" and storing only the last two digits of the year. For example, these
automated systems would recognize a year stored as "00" as the year "1900",
rather than as the year "2000". If these automated systems are not
appropriately re-coded, updated or replaced before the year 2000, they will
likely confuse data, crash or fail in some manner. In addition, many software
programs and automated systems will fail to recognize the year 2000 as a leap
year. The problem is not limited to computer systems. Year 2000 issues will
potentially affect every system that has an embedded microchip, such as
automated teller machines, elevators and vaults.
The year 2000 challenge is especially problematic for financial institutions,
since many transactions such as interest accruals and payments are date
sensitive. It also may affect the operations of third parties with whom the
Company does business, including the Company's vendors, suppliers, utility
companies and customers.
<PAGE>
THE COMPANY'S STATE OF READINESS. The Company is committed to addressing these
year 2000 challenges in a prompt and responsible manner and has dedicated
resources to do so. Management has completed an assessment of its automated
systems and has implemented a plan to resolve these issues, including
purchasing appropriate computer technology. The Company's year 2000 compliance
plan ("Y2K Plan") has five phases. These phases are (1) project management,
(2) awareness, (3) assessment, (4) testing, and (5) renovation and
implementation. The Company has substantially completed phases one through
four, although appropriate follow-up activities are continuing to occur, and
the Company is currently involved in the renovation and implementation phase of
the Y2K Plan.
Project Management. The Company has assigned primary responsibility for
year 2000 project management to its Vice President-Data Processing. The
Company has also formed a year 2000 compliance committee, consisting of
appropriate representatives from its critical operational areas including
each of the affiliate banks, to assist the Vice President-Data Processing
in implementing the Y2K Plan. In addition, the Company provides monthly
reports to its board of directors and to the boards of directors of each
of its subsidiaries, in order to assist them in overseeing the Company's
year 2000 readiness.
Awareness. The Company has completed several projects designed to promote
awareness of year 2000 issues throughout our organization and our customer
base. These projects include communication through local seminars in each
of the communities the Company serves, mailing information brochures to
deposit and loan customers, providing training for lending officers and
other staff, and responding to vendor, customer, and shareholder
inquiries.
Assessment. Assessment is the process of identifying all mission-critical
applications that could potentially be negatively affected by dates in the
year 2000 and beyond. The Company's assessment phase is substantially
complete. Systems examined during this phase included telecommunications
systems, account-processing applications, and other software and hardware
used in connection with customer accounts. The Company's operations, like
those of many other companies, are intertwined with the operations of
certain of its business partners. Accordingly, the Company's operations
could be materially affected if the operations of those companies who
provide the Company with mission critical applications, systems, and
services are materially affected. For example, the Company depends upon
vendors who provide equipment, technology, and software to it in
connection with its business operations. Failure of these software
vendors to achieve year 2000 readiness could substantially affect the
operations of the Company. In addition, lawsuits and other financial
challenges materially affecting the financial viability of these vendors
could materially affect the Company. In response to this concern, the
Company has identified and contacted those vendors who provide our
mission-critical applications. The Company has assessed their year 2000
compliance efforts and will continue to monitor their progress as the year
2000 approaches.
Testing. Updating and testing of the Company's mission-critical automated
systems has been completed. All mission-critical systems were
successfully tested to verify that dates in the year 2000 are being
appropriately recognized and processed. Testing of renovations and new
systems will continue throughout 1998 and 1999.
Renovation and Implementation. This phase involves obtaining and
implementing renovated software applications provided by our vendors. As
these applications are received and implemented, the Company will test
them for year 2000 compliance. This phase also involves upgrading and
replacing automated systems where appropriate and will continue throughout
1998 and 1999. Although this phase will be substantially complete before
the end of 1999, additional follow-up activities may take place in the
year 2000 and beyond.
<PAGE>
ESTIMATED COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES. The total financial
effect of these year 2000 challenges on the Company cannot be predicted with
certainty at this time. In fact, in spite of all efforts being made to rectify
these problems, the success of these efforts cannot be predicted until the year
2000 actually arrives. The Company will upgrade or replace certain automated
systems before the year 2000; however some of these systems would have been
replaced before the year 2000 without regard to year 2000 compliance issues,
due to technology updates and Company expansion.
Management does not believe that expenses related to meeting the Company's year
2000 challenges will have a material effect on the operations or financial
performance of the Company. However, factors beyond the control of management,
such as the effects on vendors of our mission-critical software and systems,
the effects of year 2000 issues on the economy, and the development of the
risks identified below under "The Risks of the Company's Year 2000 Issues,"
among other things, could have a material effect on the operations or financial
performance of the Company.
THE RISKS OF THE COMPANY'S YEAR 2000 ISSUES. The year 2000 presents certain
risks to the Company and its operations. Some of these risks are present
because the Company purchases technology applications from other parties who
face year 2000 challenges. Other of these risks are inherent in the business
of banking or are risks faced by many companies with stock traded on a national
stock exchange. Although it is impossible to identify every possible risk that
the Company may face moving into the new millennium, Management has to date
identified the following potential risks:
1.Commercial banks, such as the Company, may experience a contraction in their
deposit base, if a significant amount of deposited funds are withdrawn by
customers prior to the year 2000, and interest rates may increase in the
latter part of 1999. This potential deposit contraction could make it
necessary for the Company to change its sources of funding and could
materially impact future earnings. The Company has incorporated a
contingency plan for addressing this situation, should it occur, into its
asset and liability management policies. This plan includes maintaining the
ability to borrow funds in an amount at least equal to 50% of the Company's
allowed borrowing from the Federal Home Loan Bank of Seattle. Significant
demand for funds by other banks could reduce the amount of funds available
for the Company to borrow. If insufficient funds are available from a
Federal Home Loan Bank or other correspondents, the Company may also sell
investment securities or other liquid assets to meet liquidity needs.
Despite these efforts, a significant deposit contraction could materially
impact the Company's earnings or future operations, particularly if funds
availability at the Federal Home Loan Bank is impaired.
2.The Company lends significant amounts to businesses in its' market area. If
these businesses are adversely affected by year 2000 issues, their ability to
repay loans could be impaired. This increased credit risk could affect the
Company's financial performance. During the assessment phase of the
Company's Y2K Plan, significant borrowers were identified. Management is
currently monitoring the year 2000 compliance efforts of these credit
customers.
3.The Company's operations, like those of many other companies, can be affected
by the year 2000 triggered failures of other companies upon whom the Company
depends for the functioning of its automated systems. Accordingly, the
Company's operations could be materially affected, if the operations of those
companies who provide the Company with mission critical applications,
systems, and services are materially affected. As described previously, the
Company has identified its mission-critical vendors and is monitoring their
year 2000 compliance progress. For more information, see "The Company's Year
2000 Readiness".
4.All companies with stock traded on a national stock exchange, including the
Company, could experience a drop in stock price as investors change their
investment portfolios or sell stock prior to the new millennium. At this
time, it is impossible to predict whether or not this will in fact be the
case with respect to the stock of the Company or any other company.
5.The Company's ability to operate effectively in the year 2000 could be
affected by communications abilities and access to utilities, such as
electricity, water, telephone, and others, to the extent access is
interrupted due to the effects of year 2000 issues on these and other
utilities.
THE COMPANY'S CONTINGENCY PLANS. The Company has developed contingency plans
related to year 2000 issues. These plans range from obtaining mission-critical
system back-up capabilities to funds management contingencies.
<PAGE>
FORWARD LOOKING STATEMENTS. The discussion above, entitled "Year 2000 Issues,"
includes certain "forward looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 ("PSLRA"). This statement is included
for the express purpose of availing the Company of the protections of the safe
harbor provisions of the PSLRA. Management's ability to predict results or
effects of issues related to the year 2000 is inherently uncertain, and is
subject to factors that may cause actual results to differ materially from
those projected. Factors that could affect the actual results include the
possibility that protection procedures, contingency plans, and remediation
efforts will not operate as intended, and the Company's failure to timely or
completely identify all software or hardware applications requiring
remediation, unexpected costs, and the uncertainty associated with the impact
of year 2000 issues on the banking industry and on the Company's customers,
vendors, and others with whom it does business. Readers are cautioned not to
place undue reliance on these forward looking statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
OVERVIEW. Interest rate, credit, and operations risks are the most significant
risks impacting the Company's performance. Other types of market risk, such as
foreign currency exchange rate risk and commodity price risk do not arise in
the normal course of the Company's business activities. The Company relies on
loan reviews, prudent loan underwriting standards and an adequate allowance for
loan loss to mitigate credit risk.
The Company defines interest sensitivity (or interest rate risk) as the risk
that the Company's earnings or capital will change when interest rates change.
Market, or economic risk, by comparison, is the risk that the value of the
Company's assets will change when interest rates change. To ensure consistent
measurement, the Company has developed comprehensive Asset and Liability
Management policies that are followed by all affiliate banks.
"Exposure" is the change in pre-tax earnings, over a 12 month period, when the
Fed Funds rate changes. "Leverage" is the Company's exposure calculated as a
percent of capital and therefore is expressed in terms of a pre-tax Return on
Equity.
If the Company's earnings move in the same direction as interest rates, then
the Company is "asset sensitive" (i.e. interest income changes more than
interest expense). If the earnings move in the opposite direction from the
change in rates, then the Company is "liability sensitive" (i.e. interest
expense changes more than interest income).
CALCULATION OF INTEREST RATE RISK. A change in earnings as a result of changes
in interest rates is caused by two factors. First, the rate on each asset and
liability changes by a different amount and at a different time. Second, there
are different volumes of assets and liabilities maturing and repricing (the
traditional gap). The combination causes a change in the Company's net
interest margin.
EXPOSURE CALCULATION OF INTEREST RATE RISK: The Company will use change in
earnings exposure as its primary measure of interest rate risk. It is the
policy of the Company to control the exposure of the Company's earnings to
changing interest rates by generally maintaining a position within a reasonable
range around an "earnings neutral" or " balanced" position. This is defined
as the mix of assets and liabilities that generate a net interest margin that
is not affected by interest rate changes.
There are three reasons for establishing a target range rather than an exact
earnings neutral position. Measuring interest rate risk is not an exact
science. We can only estimate the earnings impact of a change in rates, and
this estimate may change as the rate environment changes (this is often called
"basis risk"). Also, the mix of assets and liabilities available in the
Company's market may not produce an exact earnings neutral position, thus
forcing the Company to forego good business opportunities if it must keep a
totally balanced position. Lastly, a neutral position does not allow the
Company to modestly position itself to take advantage of a rising or falling
rate trend (i.e. keeping investments shorter when rates are rising).
<PAGE>
There can be exceptions to this general rule. If, for example, the Company has
a liquidity or capital problem then this takes priority and the Company would
employ a strategy that protects liquidity by maintaining an asset sensitive
position (i.e. having assets that will reprice quickly to reflect a change in
interest rates). This would keep assets at current rates to allow their sale,
if needed, without recognizing a significant loss.
INTEREST RATE RISK EXPOSURE/LEVERAGE LIMITS: The Company shall normally
maintain a mix of assets and liabilities that produces interest rate risk that
will change the Company's net interest income over the next 12 months less than
the following limits, if the Fed Funds rate changes 2%:
Change in ROE
Leverage
--------
Asset sensitive.. ............4.0%
Liability sensitive...........2.0%
There is a lower risk limit for liability sensitivity because, in a liability
sensitive Company, interest rate risk and market risk move in the same
direction, thereby exaggerating the impact of changing rates. If the Company
were asset sensitive, these two risks would tend to offset each other.
Interest rate risk is calculated quarterly and reported to the Asset/Liability
Management Committee and then to the respective Boards of Directors.
Significant changes in the structure of the Company's finances can be modeled
during the quarters to ensure continued compliance with these policy limits.
At no time during the year were these limitations exceeded.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
The following exhibit is being filed herewith:
Exhibit 27 Financial Data Schedule
(b) REPORTS ON FORM 8-K.
None.
<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.
DATED: November 3, 1998.
SECURITY BANK HOLDING COMPANY
By: /s/ Charles D. Brummel
Charles D. Brummel
President and Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of operations of the
company's Form 10-Q for the year-to-date; and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 11,487
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 24,526
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 82,857
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 138,901
<ALLOWANCE> 1,428
<TOTAL-ASSETS> 280,386
<DEPOSITS> 224,452
<SHORT-TERM> 9,088
<LIABILITIES-OTHER> 3,239
<LONG-TERM> 13,000
0
0
<COMMON> 22,255
<OTHER-SE> 7,403
<TOTAL-LIABILITIES-AND-EQUITY> 280,386
<INTEREST-LOAN> 10,007
<INTEREST-INVEST> 3,707
<INTEREST-OTHER> 1,265
<INTEREST-TOTAL> 14,979
<INTEREST-DEPOSIT> 5,228
<INTEREST-EXPENSE> 6,145
<INTEREST-INCOME-NET> 8,834
<LOAN-LOSSES> 192
<SECURITIES-GAINS> 9
<EXPENSE-OTHER> 9,194
<INCOME-PRETAX> 3,048
<INCOME-PRE-EXTRAORDINARY> 1,985
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,985
<EPS-PRIMARY> .49
<EPS-DILUTED> .49
<YIELD-ACTUAL> 4.38
<LOANS-NON> 556
<LOANS-PAST> 49
<LOANS-TROUBLED> 0<F1>
<LOANS-PROBLEM> 0<F1>
<ALLOWANCE-OPEN> 1,429
<CHARGE-OFFS> 218
<RECOVERIES> 25
<ALLOWANCE-CLOSE> 1,428
<ALLOWANCE-DOMESTIC> 0<F1>
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0<F1>
<FN>
<F1>These items not required by regulation SB.
</FN>
</TABLE>
