<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1998.
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________.
Commission File Number 0-20288
COLUMBIA BANKING SYSTEM, INC.
(Exact name of issuer as specified in its charter)
Washington 91-1422237
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1102 Broadway Plaza
Tacoma, Washington 98402
(Address of principal executive offices) (Zip Code)
(253) 305-1900
(Issuer's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the issuer: (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
The number of shares of the issuer's Common Stock outstanding at
October 31, 1998 was 10,047,298.
<PAGE>
TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION
Page
Item 1. Financial statements
Consolidated Statements of Operations - three months and
nine months ended September 30, 1998 and 1997 2
Consolidated Balance Sheets - September 30, 1998
and December 31, 1997 3
Consolidated Statements of Shareholders' Equity -
twelve months ended December 31, 1997 and
nine months ended September 30, 1998 4
Consolidated Statements of Cash Flows -
nine months ended September 30, 1998 and 1997 5
Notes to consolidated financial statements 6
Item 2. Management Discussion and Analysis of Financial 8
Condition and Results of Operations
Item 3. Interest Rate Sensitivity 17
PART II -- OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K 19
Signatures 19
1
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
Columbia Banking System, Inc.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands except per share) 1998 1997 1998 1997
- - -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income
Loans $17,146 $14,870 $49,521 $40,827
Securities available for sale 1,164 1,020 3,322 2,804
Securities held to maturity 87 124 333 488
Deposits with banks 612 308 1,125 1,114
- - -----------------------------------------------------------------------------
Total interest income 19,009 16,322 54,301 45,233
Interest Expense
Deposits 7,828 6,404 21,700 18,121
Federal Home Loan Bank advances 453 540 1,529 1,430
Other borrowings 23 64
- - -----------------------------------------------------------------------------
Total interest expense 8,281 6,967 23,229 19,615
Net Interest Income 10,728 9,355 31,072 25,618
Provision for loan losses 450 582 1,450 2,290
- - -----------------------------------------------------------------------------
Net interest income after
provision for loan losses 10,278 8,773 29,622 23,328
Noninterest Income
Service charges and other fees 1,456 980 4,157 2,907
Mortgage banking 405 270 1,215 565
Gains on sale of loans, net 1,035
Other fees 1,273 803 3,153 2,360
- - -----------------------------------------------------------------------------
Total noninterest income 3,134 2,053 8,525 6,867
Noninterest Expense
Compensation and employee benefits 4,246 3,474 11,906 9,776
Occupancy 1,321 1,038 3,650 3,298
Advertising and promotion 388 257 1,125 800
Data processing 452 450 1,312 1,144
Other 3,049 2,388 8,558 6,911
- - -----------------------------------------------------------------------------
Total noninterest expense 9,456 7,607 26,551 21,929
Income before income taxes 3,956 3,219 11,596 8,266
Provision for income taxes 1,362 981 4,041 2,473
- - -----------------------------------------------------------------------------
Net Income $ 2,594 $ 2,238 $ 7,555 $ 5,793
=============================================================================
Net income per common share:
Basic $ 0.26 $ 0.23 $ 0.75 $ 0.59
Diluted 0.25 0.22 0.73 0.57
Average number of common shares
outstanding 10,044 9,832 10,027 9,829
Average number of diluted common
shares oustanding 10,357 10,162 10,355 10,105
See accompanying notes to consolidated financial statements.
</TABLE>
2
<PAGE>
CONSOLIDATED BALANCE SHEETS
Columbia Banking System, Inc.
<TABLE>
<CAPTION>
September 30, December 31,
(in thousands) 1998 1997
- - -----------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks $ 49,311 $ 47,604
Interest-earning deposits with banks 43,170 28,108
Securities available for sale 90,392 56,279
Securities held to maturity 6,808 9,679
FHLB stock 5,444 5,144
Loans held for sale 7,511 4,377
Loans 767,512 685,889
Less: allowance for loan losses 9,273 8,440
- - -----------------------------------------------------------------------------
Loans, net 758,239 677,449
Interest receivable 6,156 5,023
Premises and equipment, net 35,538 27,246
Real estate owned 843 231
Other 3,547 3,415
- - -----------------------------------------------------------------------------
Total Assets $1,006,959 $864,555
=============================================================================
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing $167,408 $146,063
Interest-bearing 713,543 594,367
- - -----------------------------------------------------------------------------
Total Deposits 880,951 740,430
Federal Home Loan Bank advances 32,000 39,000
Other liabilities 7,208 6,772
- - ----------------------------------------------------------------------------
Total liabilities 920,159 786,202
Shareholders' equity:
Preferred stock (no par value)
Authorized, 2,000,000 shares;
None outstanding
September 30, December 31,
Common stock (no par value) 1998 1997
--------- ----------
<S> <C> <C>
Authorized shares 45,000 16,500
Issued and outstanding 10,047 9,880 68,541 67,901
Retained Earnings 17,970 10,415
Unrealized gains on securities
available for sale, net of tax 289 37
- - -----------------------------------------------------------------------------
Total shareholders' equity 86,800 78,353
- - -----------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $1,006,959 $864,555
=============================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Columbia Banking System, Inc.
<TABLE>
<CAPTION>
Common stock Unrealized Total
Number of Retained Gains and Shareholders'
(in thousands) Shares Amount Earnings (Losses) Equity
- - -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1996 9,372 $62,980 $5,282 $ (38) $68,224
Net income 9,275 9,275
Issuance of shares
of common stock, net 117 779 779
Issuance of shares
of common stock -
5% stock dividend 391 4,142 (4,142)
Change in unrealized gains
(losses)on securities
available for sale, net of tax 75 75
- - -----------------------------------------------------------------------------
Balance at
December 31, 1997 9,880 67,901 10,415 37 78,353
Net income 7,555 7,555
Issuance of shares
of common stock, net 167 640 640
Change in unrealized gains
(losses)on securities
available for sale, net of tax 252 252
- - -----------------------------------------------------------------------------
Balance at
September 30, 1998 10,047 $68,541 $17,970 $289 $86,800
=============================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Columbia Banking System, Inc.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
(in thousands) 1998 1997
- - -----------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income $ 7,555 $ 5,793
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Provision for loan losses 1,450 2,290
Losses on real estate owned 31 80
Depreciation and amortization 1,512 1,939
Deferred income taxes (4)
Net realized losses (gains) on sale of assets 2 (1,048)
(Increase) decrease in loans held for sale (3,134) 6,551
Increase in interest receivable (1,133) (996)
Increase in interest payable 523 421
Net changes in other assets and liabilities (250) (1,757)
- - -----------------------------------------------------------------------------
Net cash provided by operating activities 6,556 13,269
Investing Activities
Proceeds from maturities of securities
available for sale 28,015 15,901
Purchases of securities available for sale (67,079) (26,571)
Proceeds from maturities of mortgage-backed
securities available for sale 5,070 1,599
Proceeds from maturities of securities
held to maturity 3,750 2,656
Purchases of securities held to maturity (880) (694)
Loans originated and acquired, net of
principal collected (82,802) (135,128)
Proceeds from sales of loans 10,177
Purchases of premises and equipment (10,223) (6,822)
Proceeds from disposal of premises and equipment 1 5
Proceeds from sale of real estate owned 200 343
Other, net (5)
- - -----------------------------------------------------------------------------
Net cash used by investing activities (123,948) (138,539)
Financing Activities
Net increase in deposits 140,521 116,447
Net increase in other borrowings (501)
Proceeds from FHLB advances and other long-term debt 25,000
Repayment of FHLB advances and other long-term debt (7,000) (20,000)
Repurchase of common stock (101)
Proceeds from issuance of common stock 640 511
- - -----------------------------------------------------------------------------
Net cash provided by financing activities 134,161 121,356
- - -----------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 16,769 (3,914)
Cash and cash equivalents at beginning of period 75,712 83,258
- - -----------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 92,481 $ 79,344
=============================================================================
Supplemental information:
Cash paid for interest $ 22,706 $ 19,193
Loans foreclosed and transferred to real estate owned 843 440
See accompanying notes to consolidated financial statements.
</TABLE>
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Columbia Banking System, Inc.
Columbia Banking System, Inc. (the "Company") is a registered bank holding
company whose wholly owned subsidiary, Columbia State Bank ("Columbia Bank"),
conducts a full-service commercial banking business. Headquartered in Tacoma,
Washington, the Company provides a full range of commercial banking services
to small and medium-sized businesses, professionals and other individuals
through banking offices located in the Tacoma metropolitan area and
contiguous parts of the Puget Sound region of Washington, as well as the
Longview and Woodland communities in southwestern Washington. Substantially
all of the Company's loans, loan commitments and core deposits are
geographically concentrated in its service areas.
1. Basis of Presentation
The interim unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial
information and with instructions to Form 10-Q. 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 necessary for
a fair presentation of results of operations for the interim periods included
herein have been made. The results of operations for the nine months ended
September 30, 1998, are not necessarily indicative of results to be
anticipated for the year ending December 31, 1998. Certain amounts in the
1997 financial statements have been reclassified to conform with the 1998
presentation. For additional information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1997.
2. Stock Split
On April 22, 1998, the Company announced a three shares for two stock split
payable on May 20, 1998, to shareholders of record on May 6, 1998. Common
shares authorized, issued and outstanding, average shares outstanding and
net income per share for all periods presented have been retroactively
adjusted to give effect to this transaction.
3. Comprehensive Income
Beginning in 1998, the Company adopted the Financial Accounting Standards
Board ("FASB") Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 requires the
reporting of comprehensive income in addition to net income from operations.
Comprehensive income is a more inclusive financial reporting methodology that
includes disclosure of certain financial information that historically has
not been recognized in the calculation of net income.
The Company holds securities classified as available-for-sale, which had
gross unrealized gains of $492,000 and $74,000 for the three months ended
September 30, 1998 and 1997, respectively. For the nine months ended
September 30, 1998 and 1997, the Company had gross unrealized gains of
$382,000 and $138,000, respectively. The before tax and after tax amounts
for each of these categories, as well as the tax benefit of each period
is summarized below.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 1998 1997 1998 1997
- - ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Unrealized gain (loss) on securities:
Gain arising during the period $ 492 $ 74 $ 382 $ 138
- - ------------------------------------------------------------------------------
Other comprehensive income before tax 492 74 382 138
- - ------------------------------------------------------------------------------
Provision for income taxes (167) (25) (130) (47)
- - ------------------------------------------------------------------------------
Other comprehensive income after tax $ 325 $ 49 $ 252 $ 91
=============================================================================
6
<PAGE>
CONSOLIDATED AVERAGE BALANCES--NET CHANGES
Columbia Banking System, Inc.
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Increase Nine Months Ended Increase
September 30, (Decrease) September 30, (Decrease)
(in thousands) 1998 1997 Amount 1998 1997 Amount
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans $763,587 $640,981 $122,606 $732,089 $594,681 $137,408
Securities 81,624 73,573 8,051 78,495 71,099 7,396
Interest-earning
deposits with banks 44,049 22,138 21,911 27,218 27,779 (561)
- - --------------------------------------------------------------------------------
Total interest-earning
assets 889,260 736,692 152,568 837,802 693,559 144,243
Noninterest-earning
assets 79,798 63,326 16,472 73,372 58,290 15,082
- - --------------------------------------------------------------------------------
Total assets $969,058 $800,018 $169,040 $911,174 $751,849 $159,325
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing
deposits $687,500 $557,959 $129,541 $641,284 $531,020 $110,264
Federal Home Loan Bank
advances 32,828 39,095 (6,267) 37,187 34,385 2,802
Other borrowings 1,765 (1,765) 1,701 (1,701)
- - --------------------------------------------------------------------------------
Total interest-bearing
liabilities $720,328 598,819 121,509 678,471 567,106 111,365
Noninterest-bearing
deposits 156,628 119,922 36,706 143,305 106,970 36,335
Other noninterest-bearing
liabilities 6,298 7,403 (1,105) 6,056 6,067 (11)
Shareholders' Equity 85,804 73,874 11,930 83,342 71,706 11,636
- - --------------------------------------------------------------------------------
Total liabilities and
shareholders'equity $969,058 $800,018 $169,040 $911,174 $751,849 $159,325
================================================================================
</TABLE>
7
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Columbia Banking System, Inc.
This discussion should be read in conjunction with the consolidated financial
statements of Columbia Banking System, Inc. (the "Company") and notes thereto
presented elsewhere in this report. In the following discussion, unless
otherwise noted, references to increases or decreases in average balances in
items of income and expense for a particular period and balances at a
particular date refer to the comparison with corresponding amounts for the
period or date one year earlier.
This discussion contains certain forward-looking statements within the
meaning of the federal securities laws. Actual results and the timing of
certain events could differ materially from those projected in the forward-
looking statements due to a number of factors. Specific factors include,
among others, the effect of interest rate changes, risk associated with
bank acquisitions or opening new branches, expense control, the timing,
effect and cost of completing internal year 2000 modifications and general
economic conditions.
Overview
Columbia Banking System, Inc., a Washington corporation, is a registered
bank holding company whose wholly owned subsidiary, Columbia State Bank
("Columbia Bank"), conducts a full-service commercial banking business.
Headquartered in Tacoma, Washington, the Company serves small and medium-
sized businesses, professionals and other individuals through 23 banking
offices located in the Tacoma metropolitan area and contiguous parts of
the Puget Sound region of Washington, as well as the Longview and Woodland
communities in southwestern Washington. At September 30, 1998, the Company
had total assets of $1.0 billion.
Management believes the ongoing consolidation among financial institutions
in Washington has created significant gaps in the ability of large banks
operating in Washington to serve certain customers, particularly
the Company's target customer base of small and medium-sized businesses,
professionals and other individuals. The Company's business strategy is
to provide its customers with the financial sophistication and breadth of
products of a regional bank while retaining the appeal and service level of
a community bank. Management believes that as a result of the Company's
strong commitment to highly personalized relationship-oriented customer
service, its varied products, its strategic branch locations and the long-
standing community presence of its managers, lending officers and branch
personnel, it is well positioned to attract new customers and to increase
its market share of loans and deposits.
The Company's goal over the next several years is to create a well-
capitalized, customer focused, Pacific Northwest commercial banking
institution with a significant presence in selected markets. The Company
intends to effect this growth strategy through a combination of growth at
existing branch offices, new branch openings (usually following the hiring
of an experienced branch manager and/or lending officer with strong community
ties and banking relationships) and acquisitions. In particular, the Company
anticipates continued expansion in Pierce County, north into King County
(the location of Auburn and Bellevue), south into Thurston County (the
location of the state capitol, Olympia) and northwest into Kitsap County
(the location of Bremerton and Port Orchard). Expansion by acquisition
into other markets will be considered as promising situations arise. In
order to fund its commercial and consumer lending activities and to allow
for increased contact with customers, the Company is establishing a branch
system catering primarily to retail depositors, supplemented by business
customer deposits and other borrowings. The Company believes this mix of
funding sources will enable it to expand its commercial lending activities
rapidly while attracting a stable core deposit base. In order to support
its strategy of growth, without compromising its personalized banking
approach or its commitment to asset quality, the Company has made significant
investments in experienced branch, lending and administrative personnel and
has incurred significant costs related to its branch expansion.
8
<PAGE>
Although the Company's expense ratios have improved since 1993, management
anticipates that the ratios will remain relatively high by industry
standards for the foreseeable future due to the Company's aggressive
growth strategy and emphasis on convenience and personal service.
The Company completed its first bank acquisitions during the fourth quarter
of 1997, merging Cascade Bancorp, Inc. ("Cascade") and Bank of Fife ("Fife")
into Columbia Bank, thereby adding three branch office locations. Cascade
operated three banking offices in the south King County market area. Two
of the branches are located in Auburn (a market in which Columbia did not
have a branch) and the third in downtown Kent. Columbia consolidated its
Kent branch office into the Cascade branch location. Fife operated one
banking office in the town of Fife, a commercial market in which Columbia
did not have a branch.
During the first quarter of 1998, Columbia Bank opened two new branches.
The Westgate branch in north Tacoma opened in January, and the 176th and
Meridian branch in eastern Pierce County opened in February. Both are
newly constructed, full-service facilities. The Company's future plans
include new locations in Pierce, King, Cowlitz, Kitsap and Thurston
counties of western Washington. Specifically, Columbia's fourth Cowlitz
County branch opened in early November 1998 inside the Triangle Mall
Thriftway store in Longview. In addition, the Bank has scheduled the
grand opening in mid-November 1998 of its fifteenth Pierce County location,
in the Stadium district of Tacoma. Construction has also begun on
Columbia's first Kitsap County site in Port Orchard, which is projected
to open during the first quarter of 1999. Additionally, management
continues to pursue opportunities for branching near 84th and Pacific
Avenue in Tacoma (Pierce County), Olympia (Thurston County) and
Forest Villa (King County). New branches normally do not contribute to
net income for many months after opening.
At September 30, 1998, the Company had 23 branches, 14 in Pierce County,
6 in King County, and 3 in Cowlitz County. Since beginning its major
Pierce County expansion in August 1993, the Company has grown from four
to twenty-three branches through a combination of internal and external
growth by acquisition.
In addition to the ongoing expansion of its branch network, the Company
continuously reviews new products and services to give its customers more
banking options. In addition, new technology and services are reviewed
for business development and cost saving. During the third quarter, the
Company occupied a new state-of-the-art Operations Center that will
allow for substantial future growth.
The economy of the Company's principal market area, while primarily
dependent upon aerospace, foreign trade and natural resources,
including agriculture and timber, has become more diversified over the
past decade as a result of the success of software companies such as
Microsoft and the establishment of numerous research and biotechnology
firms. The Washington economy and that of the Puget Sound region generally
have experienced strong growth and stability in recent years.
In the third quarter of 1998 the Company was named in the Fortune magazine
annual ranking of America's 100 fastest growing companies as judged by
earnings growth. The Company was the only banking company on the list
and was ranked 82nd.
Results of Operations
The results of operations of the Company are dependent to a large degree
on the Company's net interest income. The Company also generates
noninterest income through service charges and fees and income from mortgage
banking and other operations. The Company's operating expenses consist
primarily of compensation and employee benefit expense and occupancy expense.
Like most financial institutions, the Company's interest income and cost of
funds are affected significantly by general economic conditions, particularly
changes in market interest rates, and by government policies and actions of
regulatory authorities.
9
<PAGE>
Net income for the third quarter of 1998 was $2.6 million, or $0.25 per share
(diluted), compared to $2.2 million, or $0.22 per share (diluted), for the
third quarter of 1997, an increase in net income of 16%. Net income for the
nine months ended September 30, 1998, was $7.6 million, up 30% compared with
$5.8 million in 1997. Per share net income (diluted) increased to $0.73
from $0.57 for the first nine months of 1997. The earnings increases for
the quarter and nine-month periods reflect strong growth in loans coupled
with continued increases in noninterest income.
During the first nine months of 1997, an additional loan loss provision of
$800,000 was recorded due to the rapid loan growth experienced in the
second quarter, and a one-time gain of $1.0 million was realized from the
sale of the Company's VISA(Trade Mark) credit card portfolio.
With the completion of the Company's first acquisitions in December 1997,
Cascade Community Bank and Bank of Fife were merged into Columbia Bank.
The mergers were accounted for on a pooling of interests basis, and
Company financial statements for all reported periods have been restated
to reflect the mergers.
Additionally, on April 22, 1998, the Company announced a three shares for
two stock split payable on May 20, 1998, to shareholders of record on
May 6, 1998. Common shares issued and outstanding, average shares
outstanding and net income per share for all periods presented have been
retroactively adjusted to give effect to this transaction.
Net Interest Income
Net interest income for the third quarter of 1998 increased 15% to
$10.7 million, from $9.4 million in the third quarter of 1997. For the
first nine months of 1998, net interest income increased 21% to
$31.1 million, from $25.6 million for the same period in 1997. The
increase in net interest income was largely due to the overall growth
of the Company. Net interest income was favorably affected by average
interest-earning assets increasing more rapidly than average
interest-bearing liabilities, with the difference funded by noninterest-
bearing deposits and shareholders' equity. During the first nine months
of 1998, average interest-earning assets increased $144.2 million, while
average interest-bearing liabilities increased only $111.4 million,
compared with the same period in 1997.
Net interest margin (net interest income divided by average interest-
earning assets) decreased to 4.80% in the third quarter of 1998 from 5.04%
in the third quarter of 1997. Average interest-earning assets grew to
$889.3 million during the third quarter of 1998, compared with
$736.7 million at September 30, 1997. The average yield on interest-
earning assets decreased 0.30% to 8.49% during the third quarter of 1998
from 8.79% in the same period of 1997. In comparison, the average cost of
interest-bearing liabilities decreased 0.06% to 4.56% during the third
quarter of 1998 from 4.62% in the same period of 1997. The decrease in net
interest margin is primarily due to decreasing interest rates and to
deposit growth exceeding loan growth with consequent investments in lower
yielding assets. Competition and declining interest rates have caused
loans to reprice faster than deposits and borrowings, causing the net
interest margin to decrease. Interest rates in general have exhibited
a downward trend during the past nine months of 1998 due to a variety of
economic factors, including slowing of economic growth and low inflation.
For the first nine months of 1998, net interest margin increased to 4.97%
from 4.94% for the same period in 1997. Average interest-earning assets
grew to $837.8 million during the first nine months of 1998, compared with
$693.6 million at September 30, 1997. The average yield on interest-earning
assets decreased 0.04% to 8.68% during the first nine months of 1998 from
8.72% in the same period of 1997, while the quarter ended September 30, 1998,
the average yield on interest earning assets declined to 8.49%. In
comparison, the average cost of interest-bearing liabilities decreased
0.04% to 4.58% during the first nine months of 1998 from 4.62% in the same
period of 1997, while the average cost of interest bearing liabilities for
the third quarter of 1998 was 4.56%.
10
<PAGE>
Noninterest Income
Noninterest income increased $1.1 million, or 53%, in the third quarter of
1998, and $1.7 million, or 24%, for the first nine months of 1998, compared
with the same periods in 1997. Adjusted for a nonrecurring gain which
occurred in 1997, noninterest income increased $2.7 million, or 46%, for the
first nine months of 1998 compared with the same period in 1997. Increases
during the first nine months were primarily centered in account service
charges and mortgage banking income. In general, increases in account
service charges are due to the growth of the Company, and increases in
mortgage banking income reflect lower long-term interest rates with
corresponding greater volumes of residential real estate loan originations
as compared with the first nine months of 1997.
During the second quarter of 1997, the Company sold its VISA(Trade Mark)
credit card portfolio realizing a one-time gain of $1.0 million from the sale.
Noninterest Expense
Total noninterest expense increased $1.8 million, or 24%, in the third quarter
of 1998, and $4.6 million, or 21%, for the first nine months of 1998, compared
with the same periods in 1997. The increase was primarily due to personnel
costs associated with the Company's expansion as well as occupancy,
advertising and other expenses. The Company's efficiency ratio (noninterest
expense, excluding unusual and nonrecurring items, divided by the sum of net
interest income plus noninterest income, excluding unusual and nonrecurring
items) was 68.2% and 67.0% for the third quarter and first nine months of 1998,
respectively, and 66.7% and 69.7% for the same periods in 1997, respectively.
The increase of 1.5% for the third quarter of 1998 over the same period in 1997,
is primarily due to slower loan demand in the third quarter of 1998 and expenses
incurred with the opening of a new operations center. The portion of
compensation expense related to loan originations is deferred and deducted
from interest income over the life of the related loans. Slower loan
originations translates into slower interest income growth and lower deferrals
of compensation expense. Other categories of expense are volume driven and
reflect the Company's rapid growth. Total noninterest expense for the Company
is expected to decline in relation to revenues as the Company's asset base
grows.
Income Taxes
For the third quarter and first nine months of 1998, the Company recorded
income tax provisions of $1.4 million and $4.0 million, respectively.
11
<PAGE>
Lending Activities
The Company originates a wide variety of loans. Consistent with the trend
beginning in 1993, the Company continues to increase commercial business
loans as a percentage of its total loan portfolio. The Company also
emphasizes Private Banking services to high income and high net worth
individuals.
Loan Portfolio
The following table sets forth at the dates indicated the Company's loan
portfolio composition by type of loan:
<TABLE>
<CAPTION>
September 30, % of December 31 % of
(in thousands) 1998 Total 1997 Total
- - -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $321,499 41.8% $270,946 39.5%
Real estate:
One-to four-family residential 65,293 8.5 71,095 10.4
Five or more family residential and
commercial properties 252,300 32.9 206,628 30.1
- - -----------------------------------------------------------------------------
Total real estate 317,593 41.4 277,723 40.5
Real estate construction:
One-to four-family residential 22,770 3.0 29,695 4.3
Five or more family residential and
commercial properties 21,744 2.8 33,806 4.9
- - -----------------------------------------------------------------------------
Total real estate construction 44,514 5.8 63,501 9.2
Consumer 84,917 11.1 74,710 10.9
- - -----------------------------------------------------------------------------
Sub-total loans 768,523 100.1 686,880 100.1
Less: Deferred loan fees (1,011) (0.1) (991) (0.1)
- - -----------------------------------------------------------------------------
Total loans $767,512 100.0% $685,889 100.0%
=============================================================================
Loans held for sale $ 7,511 $ 4,377
=============================================================================
</TABLE>
Total loans increased $81.6 million, or 10.6%, to $767.5 million from year-end
1997. All categories contributed to the increase except for the one-to four
family residential and real estate construction loans, which decreased during
the first nine months of 1998.
Commercial and Private Banking Lending
Commercial loans increased to $321.5 million at September 30, 1998, representing
41.9% of total loans, from $270.9 million at December 31, 1997. This increase
reflects management's commitment to provide competitive commercial lending in
the Company's primary market areas. The Company expects to continue to expand
its commercial lending products and to emphasize in particular its relationship
banking with businesses, business owners and professional individuals.
Real Estate Lending
One- to Four-Family Residential. Residential one- to four-family loans
decreased $5.8 million to $65.3 million at September 30, 1998, representing
8.5% of total loans, compared with $71.1 million at December 31, 1997. The
decrease is attributable to maturities and prepayments of the portfolio.
These loans are used by the Company to collateralize advances from the FHLB.
The Company's underwriting standards require that one-to four-family
portfolio loans generally be owner-occupied and that loan amounts not exceed
80% (90% with private mortgage insurance) of the appraised value or cost,
whichever is lower, of the underlying collateral at
12
<PAGE>
origination. Generally, management's policy is to originate for sale to third
parties residential loans secured by properties located within the Company's
primary market areas.
Five or More Family Residential and Commercial Properties. The Company makes
multi-family and commercial real estate loans in its primary market areas.
Multi-family and commercial real estate lending increased to $252.3 million
at September 30, 1998, representing 32.9% of total loans, from $206.6 million
at December 31, 1997. The Company's underwriting standards generally require
that the loan-to-value ratio for multi-family and commercial loans not exceed
75% of appraised value or cost, whichever is lower, and that commercial
properties maintain debt coverage ratios (net operating income divided by annual
debt servicing) of 1.2 or better. Underwriting standards can be influenced by
competition. The Company endeavors to maintain the highest practical
underwriting standards while balancing the need to remain competitive in its
lending practices.
Construction Loans
The Company originates a variety of real estate construction loans. One- to
four-family residential construction loans are originated for the construction
of custom homes (where the home buyer is the borrower) and provides financing
to builders for the construction of pre-sold homes and speculative residential
construction. Construction loans on one- to four-family residences decreased
to $22.8 million at September 30, 1998, representing 3.0% of total loans, from
$29.7 million at December 31, 1997. Multi-family and commercial real estate
construction loans decreased to $21.7 million at September 30, 1998,
representing 2.8% of total loans, from $33.8 million at December 31, 1997.
The decrease is a result of growing competition fueled in part by declining
interest rates during the first nine months of 1998 as well as management's
intention to focus on commercial loans.
The Company endeavors to limit its construction lending risk through adherence
to strict underwriting procedures.
Consumer Lending
At September 30, 1998, the Company had $84.9 million of consumer loans
outstanding, representing 11.1% of total loans, as compared with $74.7 million
at December 31, 1997. Consumer loans made by the Company include automobile
loans, boat and recreational vehicle financing, home equity and home
improvement loans and miscellaneous personal loans.
13
<PAGE>
Nonperforming Assets
Nonperforming assets consist of nonaccrual loans, restructured loans and
real estate owned. The following tables set forth, at the dates indicated,
information with respect to nonaccrual loans, restructured loans, total
nonperforming loans (nonaccrual loans plus restructured loans), real estate
owned and total nonperforming assets of the Company:
<TABLE>
<CAPTION>
September 30, December 31,
(in thousands) 1998 1997
- - -----------------------------------------------------------------------------
<S> <C> <C>
Nonaccrual:
One-to four-family residential $ 1,146 $ 661
Commercial business 2,077 728
Consumer 230 73
- - -----------------------------------------------------------------------------
Total 3,453 $ 1,462
- - -----------------------------------------------------------------------------
Restructured:
One-to four-family residential 18 $ 20
Residential land and construction 1,726
- - -----------------------------------------------------------------------------
Total 1,744 $ 20
- - -----------------------------------------------------------------------------
Total nonperforming loans $ 5,197 $ 1,482
=============================================================================
Real estate owned:
One-to four-family residential $ 112
Five or more family residential and
commercial properties 731 $ 231
- - -----------------------------------------------------------------------------
Total real estate owned $ 843 $ 231
=============================================================================
Total nonperforming assets $ 6,040 $ 1,713
=============================================================================
</TABLE>
The policy of the Company generally is to discontinue the accrual of interest
on all loans past due 90 days or more and place them on nonaccrual status.
The consolidated financial statements are prepared according to the accrual
basis of accounting. This includes the recognition of interest income on the
loan portfolio, unless a loan is placed on a nonaccrual basis, which occurs
when there are serious doubts about the collectibility of principal or interest.
Restructured loans are those for which concessions have been granted due to the
borrower's weakened financial condition. This includes the reduction of
interest rates below a rate otherwise available to that borrower or the deferral
of interest or principal. Interest on restructured loans is accrued at the
restructured rates when it is anticipated that no loss of original principal
will occur.
Nonperforming loans increased to $5.2 million, or 0.68% of total loans
(excluding loans held for sale), at September 30, 1998, from $1.5 million,
or 0.22% of total loans at December 31, 1997 due principally to increases in
the commercial business and residential construction loan categories.
The increase in nonaccrual loans and other nonperforming assets is centered in a
small number of lending relationships which management considers well
collateralized. All nonperforming loans are to local businesses. Columbia
Bank is not involved with loans to foreign companies and foreign countries.
Real estate owned ("REO") increased $612,000 to $843,000 at September 30, 1998,
from $231,000 at December 31, 1997. During the first nine months of 1998, the
Company foreclosed on $843,000 of loans collateralized by real estate and
transferred the real estate to REO. Also, the Company reduced REO by $231,000
through sales, with proceeds of $200,000 from sales and net losses on sales
of $31,000.
14
<PAGE>
Total nonperforming assets increased to $6.0 million, or 0.60% of period-end
assets at September 30, 1998, from $1.7 million, or 0.20% of period-end assets
at December 31, 1997.
Provision and Allowance for Loan Losses
The allowance for loan losses is maintained at a level considered by management
to be adequate to provide for anticipated loan losses based on management's
assessment of various factors affecting the loan portfolio. This includes a
review of problem loans, business conditions and loss experience, and overall
evaluation of the quality of the underlying collateral, holding and disposal
costs, and costs of capital. The allowance is increased by provisions charged
to operations, and is reduced by loans charged off, net of recoveries.
While management believes that it uses the best information available to
determine the allowance for loan losses, unforeseen market conditions could
result in adjustments to the allowance for loan losses, and net income could
be significantly affected, if circumstances differ substantially from the
assumptions used in determining the allowance.
The allowance for loan losses at September 30, 1998 increased $833,000 to
$9.3 million from $8.4 million at December 31, 1997. The allowance for
loan losses as a percentage of loans (excluding loans held for sale at
each date) at September 30, 1998 decreased 0.02% to 1.21% form 1.23% of loans
at December 31, 1997. The decrease in the allowance as a percentage of
loans was due to net loan charge-offs of $617,000 during the first nine
months of 1998 and to the $81.6 million increase in loans outstanding during
the same period.
During the first nine months of 1998, the Company set aside $1.5 million as
a provision for loan losses as compared with $2.3 million during the first
nine months of 1997. During the first nine months of 1997, an additional
loan loss provision of $800,000 was recorded due to the rapid loan growth
experienced during that period.
Net loan charge-offs amounted to $617,000 for the first nine months of 1998
compared with net loan charge-offs of $1.1 million for the same period
in 1997.
The following table sets forth at the dates indicated the changes in the
Company's allowance for loan losses:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 1998 1997 1998 1997
- - ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Beginning balance $ 8,877 $ 6,457 $ 8,440 $ 5,282
Charge offs:
One- to four-family residential (51) (52)
Commercial business (47) (475) (542) (905)
Consumer (66) (39) (309) (206)
- - ----------------------------------------------------------------------------
Total charge-offs (113) (565) (851) (1,163)
Recoveries:
One- to four-family residential 1 1
Commercial business 32 19 158 44
Consumer 27 76 40
- - ----------------------------------------------------------------------------
Total recoveries 59 20 234 85
- - ----------------------------------------------------------------------------
Net (charge-offs) recoveries (54) (545) (617) (1,078)
Provision charged to expense 450 582 1,450 2,290
- - ----------------------------------------------------------------------------
Ending balance $ 9,273 $6,494 $ 9,273 $ 6,494
============================================================================
</TABLE>
The Allowance for Loan Losses equaled 269% of nonperforming assets at
September 30, 1998.
15
<PAGE>
Liquidity and Sources of Funds
The Company's primary sources of funds are customer deposits, advances from
the Federal Home Loan Bank of Seattle (the "FHLB") and brokered deposits.
These funds, together with loan repayments, loan sales, retained earnings,
equity and other borrowed funds, are used to make loans, to acquire
securities and other assets and to fund continuing operations.
Deposit Activities
The Company's deposit products include a wide variety of transaction accounts,
savings accounts and time deposit accounts. Total deposits increased
$140.5 million, or 19%, to $881.0 million at September 30, 1998, from
$740.4 million at December 31, 1997.
The Company is establishing a branch system catering primarily to retail
depositors, supplemented by business banking customer deposits and other
borrowings. While that stable core deposit base is being established,
management's strategy for funding growth has been to make use of brokered
and other wholesale deposits. Management anticipates continued use of
such deposits, as needed, to fund increasing loan demand. Brokered and
other wholesale deposits (excluding public deposits) increased $4.2 million
to $7.7 million, or 0.89% of total deposits, at September 30, 1998.
Borrowings
The Company relies on advances from the FHLB to supplement its funding
sources. FHLB advances decreased $7.0 million to $32.0 million during
the first nine months of 1998. FHLB advances are secured by one- to
four-family real estate mortgages and certain other assets.
Capital
Shareholders' equity at September 30, 1998, was $86.8 million compared with
$78.4 million at December 31, 1997. The increase is due to improved net
income during the first nine months of 1998. Shareholders' equity was 8.62%
and 9.06% of total period-end assets at September 30, 1998, and
December 31, 1997, respectively.
Banking regulations require bank holding companies and banks to maintain a
minimum "leverage" ratio of core capital to adjusted quarterly average total
assets of at least 3%. At September 30, 1998, the Company's leverage ratio
was 8.92%, compared with 9.33% at December 31, 1997. In addition, banking
regulators have adopted risk-based capital guidelines, under which risk
percentages are assigned to various categories of assets and off-balance
sheet items to calculate a risk-adjusted capital ratio. Tier I capital
generally consists of common shareholders' equity (which does not include
unrealized gains and losses on securities), less goodwill and certain
identifiable intangible assets, while Tier II capital includes the allowance
for loan losses and subordinated debt, both subject to certain limitations.
Regulatory minimum risk-based capital guidelines require Tier I capital of
4% of risk-adjusted assets and total capital (combined Tier I and Tier II)
of 8%. The Company's Tier I and total capital ratios were 10.36% and 11.47%,
respectively, at September 30, 1998, compared with 10.77% and 11.93%,
respectively, at December 31, 1997.
16
<PAGE>
The Federal Deposit Insurance Corporation (the "FDIC") established the
qualifications necessary to be classified as a "well-capitalized" bank,
primarily for assignment of FDIC insurance premium rates. To qualify as
"well-capitalized," banks must have a Tier I risk-adjusted capital ratio
of at least 6%, a total risk-adjusted capital ratio of at least 10%, and
a leverage ratio of at least 5%. Columbia Bank qualified as "well-
capitalized" at September 30, 1998. Federal laws generally bar institutions
which are not well-capitalized from accepting brokered deposits. The FDIC
has issued rules which prohibit under-capitalized institutions from
soliciting or accepting such deposits. Adequately capitalized institutions
are allowed to solicit such deposits, but only to accept them if a waiver
is obtained from the FDIC.
Applicable federal and Washington state regulations restrict capital
distributions, including dividends by institutions such as Columbia Bank.
Such restrictions are tied to the institution's capital levels after giving
effect to distributions. The Company's ability to pay cash dividends is
substantially dependent upon receipt of dividends from the Bank. The
Company presently intends to retain earnings to support anticipated growth.
Accordingly, the Company does not intend to pay cash dividends on its
common stock in the foreseeable future.
On April 22, 1998, the Company announced a three shares for two stock split
payable on May 20, 1998, to shareholders of record on May 6, 1998. Common
shares issued and outstanding, average shares outstanding and net income
per share for all periods presented have been retroactively adjusted to
give effect to this transaction.
Interest Rate Sensitivity
A number of measures are used to monitor and manage interest rate risk,
including income simulations and interest sensitivity (gap) analyses. An
income simulation model is the primary tool used to assess the direction and
magnitude of changes in net interest income resulting from changes in
interest rates. Key assumptions in the model include prepayment speeds on
mortgage-related assets, cash flows and maturities of other investment
securities, loan and deposit volumes and pricing. These assumptions are
inherently uncertain and, as a result, the model cannot precisely estimate
net interest income or precisely predict the impact of higher or lower
interest rates on net interest income. Actual results will differ from
simulated results due to timing, magnitude and frequency of interest rate
changes, changes in market conditions and management strategies, among
other factors. At September 30, 1998, based on the measures used to monitor
and manage interest rate risk, there has not been a material change in the
Company's interest rate risk since December 31, 1997. For additional
information, refer to the Company's annual report on Form 10-K for the
year ended December 31, 1997.
Impact of the Year 2000 Issue (Y2K)
Many existing computer systems, including the systems used by the Company,
use only two digits to identify a year in the date field. These programs
were designed and developed without considering the impact of the upcoming
change in the century. If not corrected, many computer applications could
fail or create erroneous results by or at the Year 2000. Financial
institutions, such as Columbia, are dependent on many types of automated
computer systems for their day to day operations. The failure of any of
theses systems to recognize the year 2000, could have a material effect
on the Company's business, results of operations, and/or financial
condition.
The Company's State of Readiness: The Company currently is preparing its
operations for the year 2000 and has established a project team, which
has developed a project plan intended to insure that the Company will be
Y2K compatible well before December 31, 1999. The project plan
incorporates five phases: awareness, assessment, renovation, validation,
and implementation.
17
<PAGE>
The awareness phase is ongoing and incorporates monthly updates to the
Board of Directors, management, and staff. In addition, shareholders
and customers are informed through mailings and financial reports. The
Y2K project team meets weekly. Loan officers have been trained in
interviewing and surveying credit customers of the state of readiness
of their businesses and have begun those activities. Also, the Company
will be surveying large deposit customers.
The Company has completed its assessment of all of its computer systems,
hardware, software, networks, telecommunications, ATM, property, plant
and equipment that could potentially be either directly or indirectly
affected by Y2K. The Company has identified all vendors that supply
services and/or products that could be considered critical to day-to-day
operations to determine if they are Y2K compatible. The Company is
identifying all customers who have a total borrowing relationship of
$100,000 or more or otherwise have the potential to adversely affect
the Company's asset quality or profitability if they do not become Y2K
compatible.
Based on its assessment, the Company's has begun renovating all systems
and equipment needing Y2K upgrades. In early October, the Company's
data processing provider advised the Company that it had successfully
converted its systems to Y2K compatibility. Testing will begin in
February 1999, and the Company's data processing system is expected
to be fully compliant by March 31, 1999. All other systems and
equipment have been upgraded or are in process of being upgraded for
completion by December 31, 1998. Vendors that are in the process of
upgrading or have not begun upgrading their businesses are being
monitored by the Company.
The validation process involves testing all systems and equipment
for Y2K compatibility. Bank hardware has been tested and the Company
is in the process of replacing obsolete equipment as part of our
normal business operations.
The implementation phase is ongoing and incorporates the development
of contingency plans for the century date change. The Company is
in the process of developing a credit risk mitigation plan, a
liquidity contingency plan, and ongoing disclosures and inquiries
to customers and vendors.
The Costs to Address the Company's Year 2000 Issues: The Company has
expended approximately $60,000 in staff time and travel expenses in
addressing the Y2K issue. Equipment upgrades are expected to cost
approximately $22,000. Much of the Company's equipment, such as PCs, is
being upgraded in 1998 as part of normal business operations. The Company
is relatively new and the majority of its hardware and software are recent
purchases or are being upgraded to meet growth demands. The Company moved
into a new state-of-the-art operations center in August 1998. The center
included the installation of new item processing hardware and software, a
new voice response unit, a new wire transfer system, and a new optical
storage system, all of which are Y2K compatible. Future expenses cannot
be predicted with certainty at this time, however, management does not
believe that expenses relating to meeting the Company's Y2k challenges
will have a material effect on its operations or financial performance.
The Risks of the Company's Year 2000 Issues: Although the Company can
and will prepare its operations for the century change, their can be no
assurance that its operations will not be impacted by forces beyond its
control. The Company purchases systems, equipment, and data processing
services from vendors and suppliers. It also depends on many other
vendors for various services needed for day-to-day operations. The
Company's customers could also be impacted adversely by the century change
and thereby impact the financial performance of the Company. In spite of
the Company's most diligent efforts in assuring its outside suppliers,
vendors and customers are Y2K compliant, their can be no assurance that
when the century changes, certain systems, technology, equipment and
other business will not be impacted and consequently impact the
operations of the Company.
The Company's Contingency Plans: The Company is developing a
comprehensive contingency plan for the century date change. The plan
includes back-up systems for technology, electricity, and
telecommunications. It will include a funds liquidity contingency plan.
18
<PAGE>
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See Exhibit 11 - Statement re computation of per share net income
See Exhibit 27 - Financial Data Schedule
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.
COLUMBIA BANKING SYSTEM, INC.
(Registrant)
Date November 13, 1998 By /s/ W. W. Philip
----------------------------- --------------------------------
W. W. Philip
Chairman and
Chief Executive Officer
Date November 13, 1998 By /s/ Kurt A. Grimmer
----------------------------- ---------------------------------
Kurt A. Grimmer
Acting Controller
19
<PAGE>
Exhibit 11
Statement re computation of per share net income
Columbia Banking System, Inc.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands, except per share data) 1998 1997 1998 1997
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income applicable to common stock $2,594 $2,238 $7,555 $5,793
- - --------------------------------------------------------------------------------
Average number of basic common shares
outstanding 10,044 9,832 10,027 9,829
Dilutive effect of stock options
unexercised 313 330 328 276
- - --------------------------------------------------------------------------------
Average number of diluted common shares
outstanding 10,357 10,162 10,355 10,105
================================================================================
Diluted net income per share $ 0.25 $ 0.22 $ 0.73 $ 0.57
================================================================================
</TABLE>
On April 22, 1998, the Company announced a three shares for two stock split
payable on May 20, 1998, to shareholders of record on May 6, 1998. Common
shares issued and outstanding, average shares outstanding and net income
per share for all periods presented have been retroactively adjusted to
give effect to this transaction.
For additional information on earnings per share, please see the "Capital"
section of the "Management Discussion and Analysis of Financial Condition
and Results of Operations".
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
FINANCIAL DATA SCHEDULE
Columbia Banking System, Inc.
(in thousands except per share)
</LEGEND>
<CIK> 0000887343
<NAME> COLUMBIA BANKING SYSTEM, INC.
<MULTIPLIER> 1000
<CURRENCY> $
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 49311
<INT-BEARING-DEPOSITS> 43170
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 90392
<INVESTMENTS-CARRYING> 6808
<INVESTMENTS-MARKET> 0
<LOANS> 767512
<ALLOWANCE> 9273
<TOTAL-ASSETS> 1006959
<DEPOSITS> 880951
<SHORT-TERM> 0
<LIABILITIES-OTHER> 7208
<LONG-TERM> 32000
0
0
<COMMON> 68541
<OTHER-SE> 18259
<TOTAL-LIABILITIES-AND-EQUITY> 1006959
<INTEREST-LOAN> 49521
<INTEREST-INVEST> 3655
<INTEREST-OTHER> 1125
<INTEREST-TOTAL> 54301
<INTEREST-DEPOSIT> 21700
<INTEREST-EXPENSE> 23229
<INTEREST-INCOME-NET> 31072
<LOAN-LOSSES> 1450
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 26551
<INCOME-PRETAX> 11596
<INCOME-PRE-EXTRAORDINARY> 11596
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7555
<EPS-PRIMARY> .75
<EPS-DILUTED> .73
<YIELD-ACTUAL> 4.97
<LOANS-NON> 3453
<LOANS-PAST> 0
<LOANS-TROUBLED> 1744
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 8440
<CHARGE-OFFS> 851
<RECOVERIES> 234
<ALLOWANCE-CLOSE> 9273
<ALLOWANCE-DOMESTIC> 9273
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 645
</TABLE>
