<PAGE>
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
COMMISSION FILE NUMBER 0-19829
ARGO BANCORP, INC.
-----------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3620612
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
7600 W. 63rd Street, Summit, Illinois 60501-1830
(Address of principal executive offices)
(708) 496-6010
(Issuer's telephone number)
Indicate by check mark whether the registrant (1) has 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
report(s), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
----- -----
The registrant had 497,644 shares outstanding as of April 30, 1998.
================================================================================
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
-----
PART I - FINANCIAL INFORMATION PAGE NO.
- ------------------------------ --------
Item 1 Financial Statements
Consolidated Statements of Financial Condition
as of March 31, 1998, (unaudited) and
December 31, 1997........................................... 1
Consolidated Statements of Income for the Three
Months ended March 31, 1998, and 1997 (unaudited)........... 2
Consolidated Statement of Comprehensive Income
(unaudited)................................................. 3
Consolidated Statements of Stockholders' Equity
for the Three Months Ended March 31, 1998,
and 1997 (unaudited)........................................ 4
Consolidated Statements of Cash Flows for the
Three Months ended March 31, 1998
and 1997 (unaudited)........................................ 5
Notes to Consolidated Financial Statements.................. 6
Item 2 Management Discussion and Analysis of Financial
Condition and Results of Operations......................... 10
Item 3 Quantitative and Qualitative Disclosures about Market Risk.. 18
PART II - OTHER INFORMATION
- ---------------------------
Item 1 Legal Proceedings........................................... 18
Item 2 Changes in Securities and Use of Proceeds................... 18
Item 3 Default Upon Senior Securities.............................. 18
Item 4 Submission of Matters to a Vote of Security Holders......... 18
Item 5 Other Information........................................... 19
Item 6 Exhibits and Reports on Form 8-K............................ 19
Signature Page.............................................. 20
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS: 3/31/98 12/31/97
-------- ---------
(Unaudited)
Cash....................................................... $ 8,918 $ 6,211
Interest-earning deposits................................. 11,561 2,466
FHLB of Chicago Stock...................................... 3,271 3,271
Securities Available for Sale.............................. 5,348 4,974
Loans receivable, net...................................... 153,199 153,808
Discounted loans receivable................................ 21,786 30,550
Accrued interest receivable................................ 1,614 1,725
Foreclosed real estate, net................................ 4,323 4,251
Premises and equipment, net................................ 10,898 11,235
Mortgage loan servicing rights, net........................ 6,779 6,706
Prepaid expenses and other assets.......................... 10,809 11,101
-------- ---------
$238,506 $ 236,298
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Deposits................................................. $179,832 $ 172,469
Borrowed money........................................... 28,510 34,156
Interest-bearing custodial escrow balances
for loans serviced..................................... 1 1
Custodial escrow balances for loans serviced............. 5,581 6,399
Advance payments by borrowers for taxes and insurance.... 1,462 741
Other liabilities........................................ 4,492 4,428
-------- ---------
Total liabilities...................................... $219,878 $ 218,194
-------- ---------
Stockholders' Equity:
Preferred stock, $0.01 par value;
Authorized 500,000 shares; none issued or outstanding.. --- ---
Common Stock:
Class A, $0.01 par value; Authorized
3,020,000 shares; issued and outstanding
497,644 shares...................................... 5 5
Class B, $0.01 par value; Authorized
340,000 shares; none issued or outstanding........... --- ---
Class C, $0.01 par value; Authorized
340,000 shares; none issued or outstanding........... --- ---
Class D, $0.01 par value; Authorized
800,000 shares; none issued or outstanding........... --- ---
Additional paid-in capital............................... 8,737 8,570
Retained earnings - substantially restricted............. 10,222 9,915
Accumulated other comprehensive income................... (1) (33)
Common stock acquired by:
Employee Stock Ownership Plan.......................... (42) (57)
Management Recognition Plan............................ (293) (296)
-------- ---------
Total stockholders' equity........................... $ 18,628 $ 18,104
======== =========
Total Liabilities and Stockholder's Equity................. $238,506 $ 236,298
======== =========
</TABLE>
Commitments and contingencies (Note E)
See notes to accompanying unaudited consolidated financial statements
1
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
For the Three Months Ended March 31,
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
Interest income:
Loans receivable................................................ $3,408 $2,974
Discounted loans receivable..................................... 624 1,456
Mortgage-backed securities...................................... 45 80
Interest-earning deposits....................................... 177 146
------ ------
Total interest income............................................ 4,254 4,656
------ ------
Interest expense:
Deposits........................................................ 2,249 1,970
Custodial escrow balances for
loans serviced................................................. --- 3
Borrowed money.................................................. 622 772
------ ------
Total interest expense......................................... 2,871 2,745
------ ------
Net interest income before provision
for loan losses................................................ 1,383 1,911
Provision for loan losses....................................... 185 60
------ ------
Net interest income after provision
for loan losses................................................ 1,198 1,851
------ ------
Non-interest income:
Purchased mortgage servicing income, net........................ 112 102
Mortgage banking................................................ 307 147
Gain on sale of loans receivable, discounted loans receivable,
securities available for sale, mortgage-backed securities,
and foreclosed real estate..................................... 676 381
Fees for other customer services................................ 172 94
Data processing................................................. 3,080 2,605
Other........................................................... 243 32
------ ------
Total non-interest income........................................ 4,590 3,361
------ ------
Non-interest expense:
Compensation and benefits....................................... 2,105 2,273
Occupancy and equipment......................................... 1,367 1,090
Federal deposit insurance premiums.............................. 28 22
Data processing cost of services................................ 838 439
Other general and administrative fees........................... 882 1,011
Amortization of goodwill........................................ 25 27
------ ------
Total non-interest expense....................................... 5,245 4,862
------ ------
Earnings before provision for income tax expense................ 543 350
Income tax expense............................................... 157 93
------ ------
Net earnings.................................................... 386 257
====== ======
Basic earnings per share......................................... $ .79 $ .54
====== ======
Diluted earnings per share....................................... $ .74 $ .51
====== ======
</TABLE>
See notes to accompanying unaudited consolidated financial statements
2
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
(Dollars in thousands)
For the Three Months Ended March 31,
1998 1997
------ ------
<S> <C> <C>
Net Income........................................... $ 386 $ 257
Other Comprehensive Income:
Unrealized gains on available-for sale securities:
Unrealized holding gains (losses) arising
during period, net of tax (expense)/benefit of
(30,000) in 1998 and 24,000 in 1997................ 49 (40)
Less reclassification adjustment for gains included
in net income net of tax benefit of 11,000 in 1998.. (17) ---
----- -----
Other comprehensive income........................... 32 (40)
----- -----
Comprehensive income................................. $ 418 $ 217
===== =====
</TABLE>
3
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
ACCUMULATED COMMON
COMMON ADDITIONAL OTHER STOCK STOCK TOTAL
STOCK PAID-IN RETAINED COMPREHENSIVE ACQUIRED ACQUIRED STOCKHOLDERS'
CLASS A CAPITAL EARNINGS INCOME BY ESOP BY MRP EQUITY
---------------------------------------------------------------------------------
Three months ended March 31, 1997
- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996..................... $ 4 7,382 9,444 12 (117) (165) 16,560
Net income....................................... --- --- 257 --- --- --- 257
Proceeds from issuance of stock.................. 1 399 --- --- --- --- 400
Other comprehensive income, net of tax........... --- --- --- (40) --- --- (40)
Principal payments on ESOP loan.................. --- --- --- --- 15 --- 15
Amortization of purchase price of MRP stock...... --- --- --- --- --- 27 27
Proceeds from exercise of stock options.......... --- 494 --- --- --- --- 494
Tax benefits of stock options.................... --- 193 --- --- --- --- 193
Fair value adjustment for committed ESOP shares.. --- 11 --- --- --- --- 11
Cash dividends................................... --- --- (86) --- --- --- (86)
----- ----- ------ ------ ------ -------- ------
Balance at March 31, 1997........................ $ 5 8,479 9,615 (28) (102) (138) 17,831
===== ===== ====== ====== ====== ======== ======
<CAPTION>
Three months ended March 31, 1998
- -------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997..................... $ 5 8,570 9,915 (33) (57) (296) 18,104
Net income....................................... --- --- 386 --- --- --- 386
Other comprehensive income, net of tax........... --- --- --- 32 --- --- 32
Principal payments on ESOP loan.................. --- --- --- --- 15 --- 15
Amortization of purchase price of MRP stock...... --- --- --- --- --- 3 3
Proceeds from exercise of stock options.......... --- 116 --- --- --- --- 116
Tax benefits of stock options.................... --- 39 --- --- --- --- 39
Fair value adjustment for committed ESOP shares.. --- 12 --- --- --- --- 12
Cash dividends................................... --- --- (79) --- --- --- (79)
----- ----- ------ ------ ------ -------- ------
Balance at March 31, 1998........................ $ 5 8,737 10,222 (1) (42) (293) 18,628
===== ===== ====== ====== ====== ======== ======
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Dollars in Thousands)
Three Months Ended March 31,
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................................... $ 386 $ 257
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation....................................................................... 591 484
Accretion of discounts and deferred loan fees...................................... (66) (227)
Provision for loan losses.......................................................... 185 60
(Gain) loss on sale of:
Securities available for sale...................................................... (165) (83)
Loans receivable................................................................... 9 (3)
Discounted loans receivable........................................................ (541) (250)
Foreclosed real estate............................................................. 21 (46)
Loans originated and purchased for sale.............................................. --- (7,419)
Proceeds from sale of loans receivable............................................... 12,459 3,485
Proceeds from sale of discounted loans receivable.................................... 5,400 1,741
Amortization of goodwill............................................................. 25 27
(Increase) decrease in purchased mortgage servicing rights........................... (74) 44
Amortization of purchase price of MRP and ESOP stock................................. 18 42
Recognition of fair value of ESOP shares scheduled to be released.................... 12 11
(Increase) decrease in accrued interest receivable, prepaid
expenses, and other assets......................................................... 437 477
Increase (decrease) in accrued interest payable and other liabilities................ 64 1,158
-------- --------
Net cash provided by (used in) operating activities................................ 18,761 (226)
-------- --------
Cash flows from investing activities:
Loans originated and purchased for portfolio......................................... (23,621) (27,940)
Discounted loans receivable purchased................................................ (178) (8,529)
Principal repayments on:
Loans receivable and discounted loans receivable.................................... 14,582 11,625
Mortgage-backed securities.......................................................... 53 93
Proceeds from sale of:
Foreclosed real estate............................................................. 1,014 540
Securities available for sale...................................................... 3,129 722
Purchase of:
Securities available for sale...................................................... (3,342) (1,570)
Premises and equipment............................................................. (254) (489)
Loan servicing rights.............................................................. --- (1,570)
-------- --------
Net cash provided by (used in) investing activities................................... (8,617) (27,118)
-------- --------
Cash flows from financing activities:
Net increase (decrease) in deposits................................................ 7,363 12,116
Proceeds from borrowed funds....................................................... 5,650 43,014
Repayment of borrowed funds........................................................ (11,296) (35,971)
Proceeds from exercise of stock options............................................ 116 893
Dividends paid..................................................................... (79) (86)
Net increase (decrease) in advance payments by borrowers for taxes and insurance... 722 (11)
Net increase (decrease) in custodial escrow balances for loans serviced............ (818) 2,957
-------- --------
Net cash provided by financing activities......................................... 1,658 22,912
-------- --------
Net increase (decrease) in cash and cash equivalents............................... 11,802 (4,432)
Cash and cash equivalents at beginning of period..................................... 8,677 13,276
-------- --------
Cash and cash equivalents at end of period........................................... $ 20,479 $ 8,844
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest expense..................................................................... $ 2,805 $ 2,716
Income taxes......................................................................... $ --- $ ---
Non-cash investing activity - transfer of loans to foreclosed real estate............. $ 1,117 $ 1,035
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles ("GAAP") for interim
financial information and with the instructions to Form 10-Q and Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments including normal recurring
accruals, considered necessary for fair presentation have been included. The
results of operations for the three months ended March 31, 1998, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998.
The unaudited consolidated financial statements include the accounts of Argo
Bancorp, Inc. ("Argo Bancorp," the "Corporation" or "Holding Company") and its
wholly owned subsidiaries, On-Line Financial Services, Inc. ("On-Line"), Argo
Federal Savings Bank, FSB ("Argo Savings" or "Savings Bank") and Argo Savings'
wholly owned subsidiaries, Argo Mortgage Corporation, Dolton-Riverdale Savings
Service Corporation, and Argo Savings' majority owned subsidiary Margo Financial
Services LLC ("Margo"). The statements also include Argo Bancorp's majority
owned limited liability corporation, Argo / Empire Mortgage LLC. Significant
intercompany accounts and transactions have been eliminated in consolidation.
NOTE B - STOCK BENEFIT PLANS
The Savings Bank adopted the Argo Federal Savings 401(k) Plan ("Plan") effective
October 1, 1988, for the exclusive benefit of eligible employees of the Savings
Bank. The Plan is a qualified plan covering all employees of the Savings Bank
who have completed at least 1,000 hours of service within a twelve (12)
consecutive month period and are age twenty-one (21) or older. Participants may
make contributions to the Plan from 1.0% to 12.0% of their earnings, subject to
Internal Revenue Service limitations. Matching contributions of 50.0% of each
participant's contribution up to 12.0% are made at the Savings Bank's discretion
each Plan year. The Savings Bank made contributions of $17,000 and $21,000, to
the Plan for the three months ended March 31, 1998, and 1997. The Plan also
provides benefits in the event of death, disability, or other termination of
employment.
On-Line has a 401(k) Plan covering all employees who have completed one or more
years of service. Participants may make contributions to the Plan from 1.0% to
12.0% of their earnings, subject to Internal Revenue Service limitations.
Matching contributions of 50.0% of each participant's contribution up to 6.0% of
participant contributions are made at On-Line's discretion each year. On-Line
contributions totaled $13,000 for both three-month periods ended March 31, 1998,
and 1997, respectively.
In conformity with Internal Revenue Service (IRS) rules governing separate lines
of business, the 401(k) Plan for On-Line will continue to be operated separately
from the 401(k) Plan for the Savings Bank.
6
<PAGE>
In connection with the Merger Conversion, Argo Savings formed an Employee Stock
Ownership Plan ("ESOP") for eligible employees. The ESOP borrowed funds from an
unrelated third party lender in the amount of $60,180 in order to purchase 7.0%
of the Common Stock to be issued in the Merger Conversion (5,233 shares at
$11.50 per share). The ESOP has subsequently borrowed additional funds from the
same third party lender in the amount of $245,000 in order to purchase
additional shares. The ESOP has purchased an additional 13,020 shares at an
average price of $18.79 per share. Argo Savings will make scheduled
discretionary cash contributions to the ESOP sufficient to service the amounts
borrowed. The unpaid balance of the ESOP loan has been included in borrowed
funds on the unaudited consolidated statement of condition and stockholders'
equity has been reduced by a similar amount. Contributions of $16,000 and
$17,000 were made to the ESOP to fund principal and interest for the three
months ended March 31, 1998, and 1997, respectively.
The Savings Bank records the difference between the fair value of the shares
committed to be released and the cost of those shares to the ESOP as a charge to
additional paid-in-capital with the corresponding increase or decrease to
compensation expense. Additional paid in capital increased by $12,000 for the
three months ended March 31, 1998.
On-Line does not offer an ESOP for On-Line employees. On-Line employees are not
eligible for participation under the Savings Bank's ESOP.
The Board of Directors of Argo Bancorp formed a new MRP effective September 1,
1996, which purchased 12,500 shares of Argo Bancorp stock on September 24, 1996,
for $115,000. During the year ended December 31, 1997, the Company sold 4,652
shares held by the Argo Bancorp MRP for $181,000 reducing the total shares held
by the plan to 7,848. Under this plan, employees in key management positions
with Argo Bancorp and all its subsidiaries are eligible for participation. No
shares were awarded during the three months ended March 31, 1998. During the
three months ended March 31, 1997, 1,575 share were awarded to certain key On-
Line employees. Amortization expense totaled $3,000 for each three month period
ended March 31, 1998, and 1997, respectively.
The Board of Directors of Argo Savings formed a Management Recognition Plan and
Trust ("MRP") effective October 31, 1991, which purchased 6.8% or 15,400 shares,
of the Corporation's authorized but unissued common stock in December 1991. In
addition, Argo Savings contributed $34,385 to allow the MRP to purchase 2,990
shares in the merger conversion or on the open market. All initial MRP shares
have been awarded to employees in key management positions with the Savings Bank
and are fully vested.
On April 26, 1995, an amendment to the MRP was approved, which increased the
amount of shares available to be awarded under the MRP to 24,498. An additional
3,797 and 1,907 shares were purchased in 1996 and 1995, respectively, under the
MRP. During the year ended December 31, 1997, the Company sold 5,604 shares held
by the plan for $219,000, reducing the total shares held by the plan to one
hundred (100). Employees earn the awards over a three-year period. Once awarded
the aggregate purchase price of the shares will be amortized to expense as a
portion of annual compensation as the employees become vested in their stock
awards and the amortized cost is reflected as a reduction of stockholders'
equity. No shares were awarded or vested during the three-months ended March 31,
1998. Amortization expense totaled $24,000 for the three months ended March 31,
1997.
7
<PAGE>
Argo Bancorp's Board of Directors adopted the 1991 Stock Option and Incentive
Plan (the 1991 Stock Option Plan), which was approved by its shareholders
effective December 23, 1991, under which up to 107,450 shares of Argo Bancorp's
common stock were reserved for issuance by Argo Bancorp upon exercise of
incentive stock options to be granted to full-time employees of Argo Bancorp and
its subsidiaries from time to time. Argo Bancorp awarded all 107,450 options
under the 1991 Stock Option Plan. The exercise price for the options awarded was
equal to the fair market value of the common stock at the date of grant. To date
there have been 61,898 options exercised and 8,060 options of which were
exercised during the three months ended March 31, 1998. At March 31, 1998,
options to purchase 45,552 shares were outstanding.
Argo Bancorp's Board of Directors adopted the Non-Qualified Stock Option Plan
for Non-Employee Directors (Non-Qualified Stock Option Plan), which was approved
by its shareholders effective December 23, 1991, under which up to 107,450
shares of Argo Bancorp's common stock were reserved for issuance by Argo Bancorp
upon exercise of non-incentive stock options to be granted to non-employee
directors of the Corporation and its subsidiaries from time to time. At March
31, 1998, Argo Bancorp has awarded 62,100 options for shares under the Non-
Qualified Stock Option Plan. To date, options to acquire 13,200 shares have been
exercised. No options were exercised during the three months ended March 31,
1998. The exercise price for the options awarded was equal to the fair market
value of the common stock at the date of grant. At March 31, 1998, options to
purchase 48,900 shares were outstanding under the Non-Qualified Stock Option
Plan.
On-Line does not offer a stock option plan for On-Line employees. On-Line
employees are not eligible for participation under Argo Bancorp's Stock Option
Plan.
NOTE C - REGULATORY CAPITAL
Pursuant to the Office of Thrift Supervision ("OTS") regulations, savings
institutions must meet three separate minimum capital-to-assets requirements:
(1) a risk-based capital requirement of 8.0% of risk-weighted assets, (2) a
leverage ratio of 3.0% core capital to total adjusted assets, and (3) a tangible
capital requirement of 1.5% tangible core capital to total assets. Although the
minimum capital requirement is 3.0%, the OTS Regulations provide that an
institution with less than 4.0% core capital is deemed to be "under-
capitalized." The following table summarizes, as of March 31, 1998, Argo
Savings' capital requirements under OTS regulations and its actual capital
ratios at that date:
<TABLE>
<CAPTION>
REQUIRED ACTUAL REQUIRED ACTUAL EXCESS
CAPITAL CAPITAL CAPITAL CAPITAL CAPITAL
PERCENTAGE PERCENTAGE BALANCE BALANCE BALANCE
----------- ----------- -------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Risk-based 8.0% 11.90% $9,833 $14,622 $ 4,789
Core 3.0 6.10 6,682 13,596 6,914
Tangible 1.5 6.10 3,341 13,596 10,255
</TABLE>
8
<PAGE>
NOTE D - EARNINGS PER SHARE
Basic earnings per share is based on a weighted average number of shares of
outstanding of 490,905 and 472,388 for the three months ended March 31, 1998,
and 1997, respectively. Diluted earnings per share for the three months ended
March 31, 1998, and 1997, is based upon a weighted average number of shares
outstanding of 522,352 and 505,443, respectively.
<TABLE>
<CAPTION> Three months ended
March 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Net Income........................................ $386,000 $257,000
======== ========
Weighted average common shares outstanding........ 490,905 472,388
Basic earnings per shares......................... $ .79 $ .54
======== ========
Total weighted average common shares outstanding.. 490,905 472,388
Additional dilutive shares........................ 31,447 33,055
-------- --------
Total weighted average common shares and
Equivalents outstanding for diluted computation.. 522,352 505,443
======== ========
Diluted earnings per share........................ $ .74 $ .51
======== ========
</TABLE>
NOTE E - COMMITMENTS AND CONTINGENCIES
At March 31, 1998, Argo Savings had loan commitments totaling $5.8 million and
$14.5 million in unused lines of credit. Commitments to fund loans have credit
risk essentially the same as that involved in extending loans to customers and
are subject to Argo Savings' normal credit policies. Argo Savings also had
community reinvestment act ("CRA") investment commitments outstanding of $3.2
million.
9
<PAGE>
ARGO BANCORP, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT
In addition to historical information, this Annual Report may include certain
forward looking statements based on current management expectations. The
Company's actual results could differ materially from those management
expectations. Factors that could cause future results to vary from current
management expectations include, but are not limited to, general economic
conditions, legislative and regulatory changes, monetary and fiscal policies of
the federal government, changes in tax policies, rates and regulations of
federal, state and local tax authorities, changes in interest rates, deposit
flows, the cost o funds, demand for loan products, demand for financial
services, competition, changes in the quality or composition of the Bank's loan
and investment portfolios, changes in accounting principles, policies or
guidelines and other economic, competitive, governmental and technological
factors affecting the Company's operations, markets, products, services and
prices. Further description of the risks and uncertainties to the business are
included in detail in Item 1, "Business" of the Company's Form 10-KSB for the
fiscal year ended December 31, 1997.
GENERAL
Argo Bancorp was incorporated in August 1987, for the sole purpose of acquiring
Argo Savings. Argo Bancorp was originally capitalized through the sale of 300
shares (which split in December of 1991 at 700/1) of common stock to three
investors for total proceeds of $60,000. Argo Bancorp acquired Argo Savings on
November 17, 1987 for a capital infusion of $1.1 million. On May 26, 1992, the
Corporation completed a merger conversion whereby Dolton-Riverdale Savings
converted from a state chartered mutual association to a federally chartered
stock association and simultaneously merged with and into Argo Savings with Argo
Savings as the surviving entity. The transaction was accounted for under the
pooling of interests method. There was no goodwill or other intangible assets
recorded as a result of the transaction. As part of the merger conversion with
Dolton-Riverdale Savings, the Corporation sold an additional 74,750 shares of
common stock at an issuance price of $11.50. Net proceeds from the merger
conversion were $326,000 after the deduction of the conversion expenses. The
Corporation retained 50.0% of the net proceeds from the merger conversion and
injected the remaining 50.0% into Argo Savings. All proceeds were used for
general business uses.
Argo Bancorp is a unitary savings and loan company and is registered as such
with the OTS. The Corporation is an active holding company with assets
consisting of Argo Savings stock, On-Line stock, marketable securities,
interest-earning deposits and a majority interest in Argo/Empire Mortgage LLC, a
limited liability corporation that engages in the purchase and disposition of
loans. Argo Bancorp is a Federal Housing Authority ("FHA") approved originator
and servicer, a licensed Illinois mortgage banker and an approved Federal
National Mortgage Association ("FNMA") servicer.
10
<PAGE>
The principal business of Argo Savings consists of attracting deposits from the
general public and investing those deposits, together with custodial escrow
accounts associated with purchased mortgage servicing rights and funds generated
internally, primarily in one-to-four family mortgage loans. Argo Savings is a
member of the Federal Home Loan Bank ("FHLB") System, and its deposits are
insured to the maximum allowable amount by the Federal Deposit Insurance
Corporation ("FDIC").
Argo Savings operates one (1) wholly-owned service corporation subsidiary.
Dolton-Riverdale Savings Service Corporation is a wholly-owned subsidiary that
offers life insurance annuities to the customer base of Argo Savings. Argo
Savings also has two (2) operating subsidiaries, Argo Mortgage Corporation and
Margo Financial Services LLC. Argo Mortgage Corporation is a wholly-owned
operating subsidiary, which engages in mortgage brokerage activities that focus
on purchase and sale of mortgage loans into the secondary market. Margo
Financial Services LLC is a majority owned operating subsidiary, which was
incorporated and fully operational on August 20, 1996. The activities of Margo
relate to the origination, investment, sale and servicing of mortgage loans.
Argo Savings' results of operations are dependent primarily on net interest
income, representing the difference between the interest income earned on its
loans, mortgage-backed securities, investment securities and interest-earning
deposits and its cost of funds, consisting of the interest paid on its deposits,
escrows and borrowings. Argo Savings' operating results are also affected by the
profit recognized on the sale of mortgage loans and to a lesser extent, the fees
generated by its investment in purchased mortgage servicing rights, customer
service charges and other income. Argo Savings operating expenses consist of
employee compensation, occupancy expenses, federal insurance premiums,
amortization of goodwill, and other general and administrative expenses. Results
of operations are also significantly affected by general economic and
competitive conditions, particularly changes in market interest rates,
government policies and actions of regulatory authorities.
Through activities conducted by its Argo Mortgage Corporation subsidiary, in
recent years Argo Savings has acquired mortgage loans at a deep discount for
which the borrowers are either not current as to principal and interest payments
or there is doubt to the borrower's ability to pay in full the contractual
principal and interest outstanding. In determining the amount it will bid to
acquire such loans at private sales and auctions, the Company estimates the
amounts it will realize through foreclosure, collection efforts, or other
resolution of each loan and the length of time required to complete the
collection process. Investment in these assets has resulted in higher than
market interest yields and significant gains as a result of the ultimate sale of
properties acquired through these purchases. However, losses have also been
incurred from certain properties through other real estate owned activity.
During 1997, the Company began to focus its resources on traditional loans
receivable originated through its majority-owned subsidiary, Margo, and began to
reduce its portfolio of discounted loans receivable. Discounted loans receivable
at March 31, 1998, totaled $21.2 million or 9.1% of total assets as compared to
$55.0 million or 21.7% of total assets at March 31, 1997.
On October 31, 1995, Argo Bancorp acquired On-Line, an Oak Brook, Illinois based
computer services bureau, serving bank and thrift clients throughout the
Midwest. The purchase transaction was consummated through the use of a wholly-
owned subsidiary, OLF Acquisition Corporation, which acquired shares of three
separate state chartered savings and loan services corporations which owned, in
the aggregate, 98.9% of the outstanding shares of On-Line.
11
<PAGE>
Sale of the remaining 1.1% of On-Line shares was made by a single institutional
stockholder which held shares in On-Line directly. The intervening acquisition
subsidiary and state chartered savings and loan service corporation shells were
liquidated and merged by Argo Bancorp during 1996.
Financial terms of the transaction included a cash sweep to shareholders of On-
Line funds on hand on the closing date, less amounts necessary to establish
certain agreed-upon escrow balances, a two (2) year asset note of approximately
$1,026,000, representing the closing date net book value of On-Line; a twenty-
six (26) month escrow note in the amount of $460,000, representing funds held
for future performance under a third party computer lease; and a structured
schedule of contingent payments based on future revenues of On-Line over a seven
(7) year period. The total transaction value, including asset notes and
contingent payments, will not exceed $8.9 million. During 1997, the Company
asserted claims that the selling shareholders of On-Line had breached certain
representations and warranties in the purchase contract. Following a series of
negotiations, the selling shareholders agreed to reduce the purchase price by
$1,098,000. In December 1997, the Company purchased from certain of the former
shareholders their rights to 25.45% of the future contingent payment. The
Company paid $172,000 for these future contingent payments. On April 28, 1998,
the Company funded $479,000 for its first scheduled contingent payment to the
old shareholders of On-Line. Management anticipates funding any required future
payments with borrowed funds and excess funds generated from operations and, to
the extent necessary, earnings and assets of the Company.
On-Line is a third party provider of electronic data processing services to
financial institutions located throughout the Midwest. On-Line currently
provides data processing services to thrifts, community banks, savings banks,
and mortgage brokers representing over 1.2 million customer accounts in six
Midwestern states. On-Line has historically marketed its services to
institutions with assets of less than $1.0 billion, where On-Line's orientation
toward superior customer service and specialized products allows it to
effectively compete. The acquisition by Argo Bancorp has promoted the
development and sale of technological advances in the systems, programs, and
services offered by On-Line, which includes resale of software produced by
Information Technology Incorporated, integrated check and document imaging
systems, and computer output laser disc storage technology. These services are
in addition to new offerings by On-Line in the planning and deployment of wide
area and local area network systems, the sale of all related hardware and
services, expanded technical and communications support, consultation and
training, and the maintenance of in-house systems. On-Line's strategy to
implement and offer computer output laser disc storage technology and a full
line of document imaging services has been realized and is now being marketed to
a wide array of users of advanced technology. Together with aggressive marketing
to small and mid-size commercial and community banks, On-Line's business plan to
expand its traditional thrift institution client base is being implemented.
LIQUIDITY AND CAPITAL RESOURCES
Argo Savings' primary sources of funds are deposits, proceeds from principal and
interest payments on the loan and mortgage-backed securities portfolio,
custodial deposit accounts related to loans serviced for others, and the sale of
discounted loans receivable and newly originated fixed rate long-term mortgage
loans. The most liquid assets are cash and short-term investments. The levels
of these assets are dependent on the operating, financing and investing
activities during any given period. Cash and interest-earning deposits totaled
$20.5 million at March 31, 1998.
12
<PAGE>
The primary investment activity of Argo Savings is the origination and purchase
of mortgage loans. During the three months ended March 31, 1998, and 1997, Argo
Savings originated and purchased loans receivable and discounted loans
receivable in the principal amounts of $23.8 million and $43.9 million,
respectively. During the three months ended March 31, 1998, and 1997, these
investing activities were primarily funded by principal repayments on loans
receivable and discounted loans receivable and mortgage-backed securities of
$14.6 million and $11.7 million, respectively, and the proceeds from the sale of
loans receivable and discounted loans receivable, securities available for sale
and foreclosed real estate of $22.0 million and $5.9 million, respectively.
During the three months ended March 31, 1998, additional funding was provided by
the increase in deposits of $7.0 million, partially offset by a $5.6 million
decrease in borrowings. During the three months ended March 31, 1997, additional
funding was provided by the increase in deposits of $12.1 million and the
increase in borrowings of $7.0 million.
Argo Savings is required to maintain minimum levels of liquid assets as defined
by OTS regulation. At March 31, 1998, Argo Savings liquid assets represented
6.2% of its liquidity base as compared to the required level of 4.0%. The level
of liquidity maintained is believed by management to be adequate to meet the
requirements of normal operations, potential deposit outflows, and the current
loan demand.
Liquidity management for Argo Savings is both a daily and long-term function of
the Argo Savings' senior management. Argo Savings' management meets on a daily
basis and monitors interest rates, current and projected commitments to purchase
loans and the likelihood of funding such commitments, and projected cash flows.
Excess funds are generally invested in short-term investments such as federal
funds. Cash flow projections are updated regularly to assure necessary
liquidity.
At March 31, 1998, Argo Savings' capital exceeded all of the capital
requirements of the OTS on a current and fully phased-in basis. The Savings
Bank's tangible, core and risk-based capital ratios were 6.10%, 6.10%, and
11.90%, respectively.
The OTS regulatory capital requirements also incorporate an interest rate risk
component. Savings institutions with "above normal" interest rate risk exposure
are subject to a deduction from total capital for purposes of calculating their
risk-based capital requirements. A savings institution's interest rate risk is
measured by the decline in the net portfolio value of its assets (i.e., the
difference between incoming and outgoing discounted cash flows from assets,
liabilities, and off-balance sheet contracts) that would result from a
hypothetical 200 basis point increase or decrease in market interest rates
divided by the estimated economic value of the institution's assets. In
calculating its total capital under the risk-based capital rule, a savings
institution whose measured interest rate risk exposure exceeds 2.0% must deduct
an amount equal to one-half of the difference between the institution's measured
interest rate risk and 2.0% multiplied by the estimated economic value of the
institution's interest rate risk component on a case-by-case basis. A savings
institution with assets of less than $300 million and risk-based capital ratios
in excess of 12.0% is not subject to the interest rate risk component, unless
the OTS determines otherwise. For the present time, the OTS has deferred
implementation of the interest rate risk component. At March 31, 1998, the
Savings Bank met each of its capital requirements, and it is anticipated that
Argo Savings will not be subject to the interest rate risk component.
13
<PAGE>
CHANGES IN FINANCIAL CONDITION
Total assets increased $2.2 million to $238.5 million at March 31, 1998, from
$236.3 million at December 31, 1997.
Cash and interest-earning deposits increased $11.8 million to $20.5 million at
March 31, 1998, primarily due to loan sales during the three month period ended
March 31, 1998.
Loans receivable and discounted loans receivable decreased $9.5 million to
$175.0 million at March 31, 1998, primarily due to principal repayments of $14.6
million and the sale of $17.9 million of loans receivable and discounted loans
receivable, partially offset by originations and purchases of $23.6 million in
loans receivable and the purchase of $178,000 in discounted loans receivable.
Deposits increased $7.4 million to $179.8 million at March 31, 1998, from $172.5
million at December 31, 1997. The increase can be attributed to a certificate
of deposit promotion that occurred during the three months ended March 31, 1998.
Borrowings decreased $5.6 million to $28.5 million at March 31, 1998, from $34.2
million at December 31, 1997. The decrease is primarily due to the increase in
deposits and decreased funding needs for the purchase of seasoned loan packages.
Custodial escrow balances for loans serviced decreased $818,000 to $5.6 million
at March 31, 1998, from $6.4 million at December 31, 1997. This decrease
reflects normal fluctuations within these accounts. The custodial accounts
pertain to escrowed payments of taxes and insurance and the float on principal
and interest payments on loans serviced either for Argo Savings or on behalf of
others by an independent mortgage servicing operation. The custodial accounts
related to loans serviced by others are maintained at Argo Savings in both
interest-bearing and non-interest bearing accounts. The custodial accounts
associated with loans or purchased mortgage servicing rights serviced for Argo
Savings are maintained in non-interest bearing accounts. At March 31, 1998,
$5.6 million of all custodial escrow balances pertain to loans subserviced on
behalf of Argo Savings for portfolio loans, servicing retained loans and
purchased mortgage servicing rights.
Stockholders' equity increased $524,000 to $18.6 million at March 31, 1998, from
$18.1 million at December 31, 1997. The increase was caused by the exercise of
stock options for $112,000, a tax benefit of $39,000 related to the exercise of
the options and net income of $386,000.
INTEREST RATE RISK
Argo Savings' financial objective is to reduce the sensitivity of its earnings
to interest rate fluctuations by attempting to achieve a match between the
interest rate sensitivity of its assets and liabilities. The major strategies
Argo Savings has implemented are (i) the origination and purchase of adjustable
rate loans and mortgage-backed securities; (ii) the origination of balloon
mortgages; (iii) the sale of newly originated long-term fixed rate mortgages;
(iv) the investment in purchased mortgage servicing rights which provide a
source of non-interest income and also act as a hedge against the decline in the
value of fixed rate mortgages in a rising interest rate environment; (v) the
increase of non-interest bearing custodial accounts related to the purchased
mortgage servicing rights; and (vi) the control of deposit growth and
maintenance of long-term deposits. The strategies listed have been implemented
by Argo
14
<PAGE>
Savings and are monitored on a monthly basis by management. Argo Savings does
not use any artificial hedge products to reduce its exposure to interest rate
risk.
As part of its asset/liability strategy, Argo Savings' objective is to maintain
the cumulative one-year hedged gap within a range of plus or minus 15.0% of
total assets, which helps maintain a more stable net interest spread in various
interest rate environments. The gap ratio fluctuates as a result of market
conditions and management's expectations of future interest rate trends.
Argo Savings had an excess of interest sensitive liabilities that mature or
reprice within one year over interest sensitive assets of $44.3 million or 19.8%
of total assets at March 31, 1998. As a result of the excess of interest
sensitive liabilities over interest sensitive assets, Argo Savings is "Net
Liability Sensitive" which would indicate that its earnings would be negatively
affected by rising interest rates. In periods of falling interest rates,
however, the opposite effect on net interest income is expected.
In determining the gap position, Argo Savings has assumed that passbook
accounts, NOW accounts, money market accounts, and interest-bearing escrows are
withdrawn based on assumptions prepared by the OTS in its latest gap analysis
report. The assumptions used, although standardized, may not be indicative of
the actual withdrawals experienced by Argo Savings. Fixed maturity deposits
reprice at maturity. The combined effect of these assumptions on passbook, NOW,
money market accounts and interest-bearing escrows assumes 17.0% of these
accounts withdrawn within three years, and 15.0% per year, thereafter.
Management believes that these decay rate assumptions are reasonable.
THRIFT RECHARTERING LEGISLATION
The proposed legislation regarding elimination of the federal thrift charter and
related issues remains pending before Congress. The Bank, whose deposits are
insured by the Savings Association Insurance Fund ("SAIF"), is unable to predict
whether such legislation would be enacted, the extent to which the legislation
would restrict or disrupt its operations or whether the Bank Insurance Fund
("BIF") and SAIF funds will eventually merge. See Form 10-KSB for the fiscal
year ended December 31, 1997, for a discussion of the proposed legislation.
ACCOUNTING DEVELOPMENTS
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131 requires
disclosure for each segment that are similar to those required under current
standards with the addition of quarterly disclosure requirements and a finer
partitioning of geographic disclosures. It requires limited segment data on a
quarterly basis. It also requires geographic data by country, as opposed to
broader geographic regions as permitted under current standards. SFAS No. 131
is effective for fiscal years beginning after December 15, 1997, with earlier
application permitted. Management of the Company does not expect that the
adoption of SFAS No. 131 will have a material effect on the consolidated
financial statements of the Company.
15
<PAGE>
The FASB has issued SFAS No. 132, "Employers' Disclosures about Pensions and
Other Post-Retirement Benefits," which is effective for fiscal years beginning
after December 15, 1997. This statement revises employers' disclosures about
pension and other post-retirement benefit plans. It does not change the
measurement of recognition of those plans. It standardizes the disclosure
requirements for pensions and other post-retirement benefits to the extent
practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures that are no longer as useful. The
Company adopted SFAS No. 132 on January 1, 1998. The adoption did not have an
effect on the consolidated financial statements of the Company.
ASSET QUALITY
Argo Bancorp and Argo Savings regularly review assets to determine proper
valuation. Loans are reviewed on a regular basis and an allowance for possible
loan losses is established when, in the opinion of management, the net
realizable value of the property collateralizing the loan is less than the
outstanding principal and interest and the collectibility of the loan's
principal and interest becomes doubtful.
At March 31, 1998, Argo Savings had one hundred nine (109) properties, totaling
$4.3 million classified as foreclosed real estate, as compared to one hundred
thirteen (113) properties totaling $4.3 million at December 31, 1997. The
underlying properties on March 31, 1998, consisted primarily of single family
residences. The foreclosed real estate has been written down to its estimated
fair value at March 31, 1998. The total amount of loans receivable ninety (90)
days or more past due at March 31, 1998, was $4.8 million or 3.15% of total
loans receivable compared to $5.5 million or 3.57% of total loans on December
31, 1997. Loans ninety (90) days or more past due are primarily secured by one-
to-four family residences. Total non-performing assets at March 31, 1998,
totaled $9.1 million or 3.84% of total assets compared to $9.8 million or 4.14%
of total assets at December 31, 1997. Excluded from these totals are $4.2
million of discounted loans ninety (90) days or more past due at March 31, 1998,
and $16.6 million at March 31, 1997. Discounted loans that are often purchased
with the intent to foreclose and sell the underlying property are excluded from
non-performing loans.
RESULTS OF OPERATIONS - COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS
ENDED MARCH 31, 1998, AND 1997.
GENERAL
Net income for the three months ended March 31, 1998, was $386,000 or $.74 per
diluted share compared to net income of $257,000 or $.51 per diluted share for
the three months ended March 31, 1997. The $129,000 increase in comparable
three-month earnings resulted from increases in data processing income and gain
on sale of assets partially offset by a decrease in net interest income and
increases in data processing cost of services and occupancy expenses.
16
<PAGE>
INTEREST INCOME
Interest income for the three months ended March 31, 1998, totaled $4.3 million,
as compared to $4.7 million for the comparable 1997 period. The $402,000
decrease was caused by the $2.3 million decrease in average interest-earning
assets to $197.5 million for the quarter ended March 31, 1998, and the 75 basis
point decrease in the weighted average yield on interest-earning assets to 8.62%
for the three months ended March 31, 1998. The decrease in yield is primarily
attributable to the decreased investment in discounted loans receivable, which
typically have higher then market yields.
INTEREST EXPENSES
Interest expense for the three months ended March 31, 1998, totaled $2.9 million
as compared to $2.7 million for the comparable 1997 period. The $126,000
increase was caused by a 32 basis point increase in the weighted average cost of
interest-bearing liabilities to 5.58% for the three-months ended March 31, 1998,
partially offsetting this increase was a $3.1 million decrease in the average
interest bearing liabilities.
NET INTEREST INCOME
Net interest income totaled $1.2 million for the three months ended March 31,
1998, reflecting an decrease of $653,000 from the amount recorded in the
comparable 1997 period. The decrease in net interest income for the three
months ended March 31, 1997, resulted from a 107 basis point decrease in the
effective net spread to 3.03% from 4.10% for the comparable 1997 period and a
$2.3 million decrease in average interest-earning assets, partially offset by a
$3.1 million decrease in average interest-bearing liabilities.
PROVISION FOR LOAN LOSSES
A general loan loss provision of $185,000 was recorded during the three months
ended March 31, 1998, as compared to $60,000 for the three months ended March
31, 1997. Management believes that loan loss provisions are adequate and will
continue to monitor the mortgage portfolio and substandard assets for loss
exposure.
NON-INTEREST INCOME
Non-interest income increased $1.2 million to $4.6 million for the three months
ended March 31, 1998, as compared to $3.4 million for the three months ended
March 31, 1997. The increase was the result of a $475,000 increase in data
processing income, which was caused by increases in ancillary income at On-Line
that occurred during the three months ended March 31, 1998. Also contributing
to the increase was a $295,000 increase in gains on sale of loans receivable and
securities available for sale, a $159,000 increase in mortgage banking income,
as a result of the operations of Margo, and a $212,000 increase in other income.
17
<PAGE>
NON-INTEREST EXPENSE
Non-interest expense increased $383,000 primarily due to increases in occupancy
and data processing costs of services, partially offset by decreases in other
general and administrative expenses and compensation. The $277,000 increase in
occupancy expense was due to significant leasehold improvements at On-Line, as
well as the opening of Argo Savings permanent branch location on the Westside of
Chicago, Illinois during the second half of 1997. The $399,000 increase in data
processing cost of services was due to significant hardware and software
upgrades at On-Line. Partially offsetting these increases was a $129,000
decrease in other general and administrative expenses and a $168,000 decrease in
compensation and benefits. These decreases were due to company-wide cost
reduction measures.
INCOME TAX EXPENSE
The provision for income tax expense increased $64,000 to $157,000 or 28.9% of
pre-tax earnings for the three months ended March 31, 1998, as compared to
$93,000 or 26.5% of pre-tax earnings for the comparable period. The increase is
due to the increase in pre-tax earnings and a decrease in the utilization of
affordable housing tax credits.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change in market risk since December 31, 1997, as
reported in the Company's Form 10-KSB.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Argo Bancorp and Argo Savings are not engaged in any legal proceedings of a
material nature at the present time.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
18
<PAGE>
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
The following exhibits are incorporated herein by reference:
(3) The Certificate of Incorporation and By-Laws.
3.1 Certificate of Incorporation of Argo Bancorp, Inc.*
3.2 By-Laws of Argo Bancorp, Inc.*
11.0 Statement regarding Computation of Earnings Per Share (See Note D)
27.0 Financial Data Schedule (filed herewith)
Reports of Form 8-K
None.
- --------------------------------------------------------------------------------
* Incorporated herein by reference into this document from the Exhibits to
Form S-1, Registration Statement, and filed on January 28, 1992, any
amendments thereto, Registration No. 33-45222.
19
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities and Exchange Act of 1934, the
Registrant had duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ARGO BANCORP, INC.
Date: May 12, 1998 /s/ John G. Yedinak
--------------- ---------------------------------------
John G. Yedinak, Chairman of the Board,
President, Chief Executive Officer, and
Director
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 8,918
<INT-BEARING-DEPOSITS> 11,561
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,348
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 174,985
<ALLOWANCE> 0
<TOTAL-ASSETS> 238,506
<DEPOSITS> 179,832
<SHORT-TERM> 28,510
<LIABILITIES-OTHER> 11,536
<LONG-TERM> 0
0
0
<COMMON> 5
<OTHER-SE> 18,623
<TOTAL-LIABILITIES-AND-EQUITY> 238,506
<INTEREST-LOAN> 4,032
<INTEREST-INVEST> 45
<INTEREST-OTHER> 177
<INTEREST-TOTAL> 4,254
<INTEREST-DEPOSIT> 2,249
<INTEREST-EXPENSE> 2,871
<INTEREST-INCOME-NET> 1,383
<LOAN-LOSSES> 185
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,245
<INCOME-PRETAX> 543
<INCOME-PRE-EXTRAORDINARY> 543
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 386
<EPS-PRIMARY> 0.79
<EPS-DILUTED> 0.74
<YIELD-ACTUAL> 0<F1>
<LOANS-NON> 4,826
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 814
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 984<F1>
<ALLOWANCE-DOMESTIC> 984<F1>
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0<F1>
<FN>
<F1>THIS INFORMATION IS NOT DISCLOSED IN THE FORM 10-Q.
</FN>
</TABLE>
