<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC
______
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1998 Commission File Number 0-27098
FIRST SAVINGS BANCORP, INC.
(Exact name of registrant as specified in its charter)
North Carolina 56-1842701
-------------- ----------
(State of jurisdiction of (I.R.S. Employer
incorporation or organization) Identification number)
205 SE Broad Street, Southern Pines, North Carolina 28387
- --------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(910) 692-6222
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 12 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 [ ]
As of October 31, 1998 there were 3,714,301 shares of the issuer's common stock
issued and outstanding.
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FIRST SAVINGS BANCORP, INC.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION Page Number
---------------------
Item 1. Financial Statements
Consolidated Statements of Financial Condition 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flow 5
Notes to Consolidate Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-9
PART II OTHER INFORMATION
-----------------
Item 5. Other Information 9-10
SIGNATURES 11
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FIRST SAVINGS BANCORP, INC.
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CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, June 30,
------------- ---------
1998 1998
------------- ---------
<S> <C> <C>
($ in thousands)
ASSETS
Cash and due from banks $ 3,304 $ 3,825
Interest earning deposits with banks 3,255 3,991
Investment securities available
for sale at fair value 63,974 72,732
Investment securities held to maturity
at amortized cost (fair values - $9,765
at September 30, 1998;
$9,821 at June 30, 1998) 9,400 9,737
Loans receivable (net of allowance for loan
losses of $596 at September 30,
and June 30, 1998) 209,697 208,094
Accrued interest receivable 1,756 1,749
Premises and equipment 2,098 1,936
Stock in the Federal Home Loan Bank of Atlanta,
at cost 1,930 1,930
Prepaid expenses and other assets 289 174
-------- --------
TOTAL $295,703 $304,168
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits 212,607 211,925
Borrowed funds 10,000 20,000
Accrued expenses and other liabilities 3,144 2,722
-------- --------
Total liabilities 225,751 234,647
-------- --------
SHAREHOLDERS' EQUITY:
Preferred stock, no par value, 5,000,000
shares, authorized, none issued and
outstanding
Common stock, no par value, 20,000,000 shares
authorized, 3,714,320 shares issued
and outstanding at September 30, 1998;
3,710,820 at June 30, 1998 35,379 35,536
Unearned compensation related to ESOP note
payable (123) (158)
Net unrealized gain on securities available
for sale 562 375
Retained earnings 34,134 33,768
-------- --------
Total shareholders' equity 69,952 69,521
-------- --------
TOTAL $295,703 $304,168
======== ========
</TABLE>
See notes to consolidated financial statements
3
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FIRST SAVINGS BANCORP, INC.
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CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------------
1998 1997
------------------------
<S> <C> <C>
($ in thousands except per share data)
INTEREST AND DIVIDEND INCOME:
Interest on loans receivable $ 4,224 $ 3,947
Interest on mortgage-backed securities 173 130
Interest on investment securities 1,121 1,377
Dividends on investment securities 36 35
Other 25 108
---------- ----------
Total interest income 5,579 5,597
---------- ----------
INTEREST EXPENSE:
Interest on deposits 2,520 2,488
Interest on borrowings 190 305
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Total interest expense 2,710 2,793
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Net interest income 2,869 2,804
Provision for loan losses
Net interest income after provision
for loan losses 2,869 2,804
---------- ----------
NONINTEREST INCOME:
Fees and service charges 156 118
Income from real estate operations 2 2
Rent on safe deposit boxes 2 2
Other, net 1 1
---------- ----------
Total noninterest income, net 161 123
---------- ----------
GENERAL AND ADMINISTRATIVE EXPENSES:
Compensation and fringe benefits 563 552
Occupancy and building 62 49
Federal insurance premiums 33 33
Computer services 89 105
Other 237 198
---------- ----------
Total general and administrative expenses 984 907
---------- ----------
INCOME BEFORE INCOME TAXES 2,046 2,020
INCOME TAXES 752 744
---------- ----------
NET INCOME $ 1,294 $ 1,276
========== ==========
NET INCOME PER COMMON SHARE:
Basic $0.35 $0.35
========== ==========
Diluted $0.32 $0.32
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 3,718,420 3,682,500
========== ==========
Diluted 4,018,718 3,984,737
========== ==========
</TABLE>
See notes to consolidated financial statements.
4
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FIRST SAVINGS BANCORP, INC.
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------
($ IN THOUSANDS) 1998 1997
----------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,294 $ 1,276
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of premises and equipment 26 24
Issuance of ESOP shares 83 69
Net amortization on investments 47 48
Loan origination fees and costs deferred,
net of current amortization 11 (14)
Changes in:
Other assets (115) 129
Other liabilities 315 83
-------- -------
Net cash provided by operating activities 1,661 1,615
-------- -------
INVESTING ACTIVITIES:
Net decrease in interest-earning deposits
with banks 736 3,510
Purchase of available for sale
investment securities (2,000) (2,000)
Proceeds from maturities and calls of:
Available for sale investment securities 11,000 5,500
Held to maturity investment securities 331 182
Loan originations net of principal
repayments and net fees (1,614) (4,036)
Purchase of premises and equipment (188) (29)
-------- -------
Net cash provided by investing activities 8,265 3,127
-------- -------
FINANCING ACTIVITIES:
Net increase in deposits 682 2,121
Net decrease in borrowed funds (10,000) (2,000)
Net proceeds from exercise of stock options 18
Repurchases of common stock (223) (740)
Cash dividends paid (924) 71
-------- -------
Net cash used in financing activities (10,447) (548)
-------- -------
INCREASE (DECREASE) IN CASH AND DUE FROM BANKS (521) 4,194
CASH AND DUE FROM BANKS, BEGINNING OF PERIOD 3,825 2,801
-------- -------
CASH AND DUE FROM BANKS, END OF PERIOD $ 3,304 $ 6,995
======== =======
SUPPLEMENTAL DISCLOSURES:
- -------------------------------------------------
Cash paid for:
Interest on deposits $ 2,528 $ 2,468
Interest on borrowed funds 216 332
Income taxes 10 310
</TABLE>
See notes to consolidated financial statements.
5
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FIRST SAVINGS BANCORP, INC.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation: The accompanying consolidated financial statements
include the accounts of First Savings Bancorp, Inc. and its wholly-owned
subsidiary, First Savings Bank of Moore County, Inc., SSB (the "Bank"),
together referred to as "First Savings". All significant intercompany
balances and transactions have been eliminated in consolidation.
2. Accounting Policies: The significant accounting policies followed by First
Savings for interim financial reporting are consistent with the accounting
policies followed for annual financial reporting. The accompanying
unaudited consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 or
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 (none
of which were other than normal accruals) necessary for a fair presentation
of the financial position and results of operations for the periods
presented have been included. The results of operations for the three month
period ended September 30, 1998 is not necessarily indicative of the results
of operations that may be expected for the year ending June 30, 1999. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the annual report on Form 10-K for the year
ended June 30, 1998.
3. Earnings Per Common Share: Effective July 1,1997, First Savings Bank has
implemented Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share". This Statement simplifies the standards for computing
earnings per share previously found in Accounting Principles Board ("APB")
Opinion No. 15, Earnings per Share ("EPS"), and makes them comparable to
international EPS standards. It replaces the presentation of primary EPS
with the presentation of basic EPS. It also requires dual presentation of
basic and diluted EPS on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the
numerator and the denominator of the basic EPS computation to the numerator
and denominator of the diluted EPS computation. Basic EPS excludes dilution
and is computed by dividing income available to common shareholders by the
weighted-average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if securities
or other contracts to issue common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity. Diluted EPS is
computed similarly to fully diluted EPS pursuant to APB Opinion No. 15.
Basic and diluted earnings per share have been computed based upon net
income as presented in the accompanying statements of operation divided by
the weighted average number of common shares outstanding or assumed to be
outstanding as summarized below.
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1998 1997
--------- ---------
<S> <C> <C>
Weighted average number of common
shares used in basic EPS 3,718,420 3,682,500
Effect of dilutive stock options 300,298 302,237
--------- ---------
Weighted average number of common
shares and dilutive potential common
shares used in diluted EPS 4,018,718 3,984,737
========= =========
</TABLE>
4. Stock Repurchase Plan: On September 12, 1996 First Savings' Board of
Directors adopted the First Savings Bancorp, Inc. Stock Repurchase Plan.
Pursuant to the Plan, First Savings may repurchase shares of its outstanding
common stock in the open market or in privately negotiated transactions in
accordance with regulatory requirements. On September 27, 1996 First
Savings initiated a plan to repurchase 10% of its stock. As of September
30, 1998, 86,760 shares have been repurchased.
6
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FIRST SAVINGS BANCORP, INC.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
First Savings Bancorp, Inc., a North Carolina holding company ("First Savings"),
was formed on November 1, 1995 to become the parent holding company of First
Savings Bank of Moore County, Inc., SSB (the "Bank"), a North Carolina chartered
stock savings bank. First Savings engages in no substantial business activities
other than the activities related to ownership of the Bank.
The Bank is primarily engaged in the business of attracting deposits from the
general public and using those funds to originate mortgage loans for the
purchase or construction of one-to-four family homes. To a lesser extent, the
Bank also originates multi-family residential mortgage loans, nonresidential
real estate loans, loans secured by deposits, home equity lines of credit,
installment loans and credit card loans. As a savings bank, the Bank's deposit
accounts are insured up to applicable limits by the Savings Association
Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation ("FDIC").
The Bank conducts its operations through its main office in Southern Pines,
North Carolina and 4 branch offices located in Moore County.
FINANCIAL CONDITION
First Savings had total assets of $295.7 million at September 30, 1998 compared
to $304.2 million at June 30, 1998. Net loans increased from $208.1 million at
June 30, 1998 to $210.0 million at September 30, 1998. The favorable rate
environment continues to fuel the loan growth. First Savings' total securities
decreased slightly due primarily to principal repayments on mortgage-backed
securities and maturing securities. Increased deposits and maturing securities
supported the loan growth.
Deposits increased from $211.9 million at June 30, 1998 to $212.6 million at
September 30, 1998, and shareholders' equity increased to $70.0 million at
September 30, 1998 from $69.5 million at June 30, 1998.
LIQUIDITY
Maintaining adequate liquidity while managing interest rate risk is the primary
goal of First Savings' asset and liability management strategy. Liquidity is
the ability to fund the needs of the Bank's borrowers and depositors, pay
operating expenses, and meet regulatory liquidity requirements. Maturing
investments, loan and mortgage-backed security principal repayments, deposits
and income from operations are the main sources of liquidity. The Bank's
primary uses of liquidity are to fund loans and to make investments.
As of September 30, 1998, liquid assets (cash and cash equivalents, and
marketable investment securities, less pledged investments) were approximately
$65.8 million, which represents ----% of deposits. As a North Carolina
chartered savings bank, First Savings is required to maintain liquid assets
equal to at least 10.0% of its total assets. At September 30, 1998, this
liquidity ratio, based on North Carolina regulations, was 23.05% Management
considers current liquidity levels to be adequate to meet First Savings'
foreseeable needs.
MANAGEMENT'S DISCUSSION AND ANALYSIS
At September 30, 1998, outstanding mortgage loan commitments and available home
equity line of credit balances were $16.8 million, available credit card line of
credit balances were $3.6 million and the undisbursed portion of construction
loans was $8.5 million. Funding for these commitments is expected to be
provided from deposits, loan and mortgage-backed securities principal
repayments, maturing investments and income generated from operations.
7
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FIRST SAVINGS BANCORP, INC.
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REGULATORY CAPITAL REQUIREMENTS
Federal banking regulations require that bank holding companies and their bank
subsidiaries meet various regulatory capital requirements administered by the
federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on First
Savings' financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, First Savings must meet
specific capital guidelines that involve quantitative measures of First Savings
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. First Savings' capital amounts and
classification are also subject to qualitative judgements by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require First Savings to maintain minimum amounts and ratios of total and Tier 1
capital to risk-weighted assets, and of Tier 1 capital to average assets.
As of December 31, 1997, the most recent notification from the FDIC categorized
the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Bank must
maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios
as set forth in the table. There are no conditions or events since that
notification that management believes have changed the category.
ACTUAL CAPITAL AMOUNTS AND RATIOS FOR FIRST SAVINGS AND THE BANK
ARE PRESENTED IN THE TABLE BELOW:
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ------- -------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
AS OF SEPTEMBER 30, 1998
Total Capital (to Risk Weighted Assets:
Consolidated $69,986 48.19% $11,617 *8.0% n/a n/a
First Savings Bank of Moore Co., Inc., SSB $56,224 38.75% $11,608 *8.0% $14,510 *10.0%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated $69,390 47.78% $ 5,809 *4.0% n/a n/a
First Savings Bank of Moore Co., Inc., SSB $55,628 38.34% $ 5,804 *4.0% $ 8,706 *6.0%
Tier 1 Capital (to Average Assets):
Consolidated $69,390 23.19% $11,969 *4.0% n/a n/a
First Savings Bank of Moore Co., Inc., SSB $55,628 19.27% $11,548 *4.0% $14,435 *5.0%
</TABLE>
- ---------
* Greater than or equal to
In addition to federal regulatory requirements, the Bank is subject to a North
Carolina savings bank capital requirement of at least 5% of total assets. At
September 30, 1998, the Bank's capital ratio under the North Carolina
requirements was 19.76%.
At September 30, 1998, First Savings and the Bank exceeded all capital
requirements.
8
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FIRST SAVINGS BANCORP, INC.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPT.30, 1998 AND
1997
Net income and earnings per share on a diluted basis for the three months ended
September 30, 1998 were $1,294,000 and $0.32, respectively, compared to
$1,276,000 and $0.32, respectively, for the corresponding period of the prior
year. Increases in net interest income and noninterest income supported the
earnings growth.
General and administrative expenses increased from $907,000 for the month ended
September 30, 1997 to $984,000 for the quarter ended September 30, 1998. The
increase was due primarily to increases in compensation and other administrative
expenses.
OTHER INFORMATION
YEAR 2000 COMPLIANCE
The "Year 2000" issue confronting First Savings and its suppliers, customers,
customers' suppliers and competitors centers on the inability of computer
systems to recognize the Year 2000. Many existing computer programs and systems
were originally programmed with six digit dates that provided only two digits to
identify the calendar year in the date field, without considering the upcoming
change in the century. With the impending new millennium, these programs and
computers will recognize "00" as the year 1900 rather than the year 2000. Like
most financial service providers, First Savings and its operations may be
significantly affected by the Year 2000 issue due to its dependence on computer
generated financial information. Software, hardware, and equipment both within
and outside First Savings' direct control and with whom First Savings
electronically or operationally interfaces (e.g. third party vendors providing
data processing, information system management, maintenance of computer systems,
and credit bureau information) are likely to be affected. Furthermore, if
computer systems are not adequately changed to identify the Year 2000, many
computer applications could fail or create erroneous results. As a result, many
calculations which rely on date field information, such as interest, payment of
due dates and other operating functions, could generate results which are
significantly misstated, and First Savings could experience a temporary
inability to process transactions, prepare statements or engage in similar
normal business activities. In addition, under certain circumstances, failure
to adequately address the Year 2000 issue could adversely affect the viability
of First Savings' suppliers and creditors and the creditworthiness of its
borrowers. Thus, if not adequately addressed, the Year 2000 matter could result
in a significant adverse impact on products, services and the competitive
condition of First Savings.
Financial institution regulators have recently increased their focus upon Year
2000 compliance issues, issuing guidance concerning the responsibilities of
senior management and directors. The Federal Financial Institutions Examination
Council ("FFIEC") has issued several interagency statements on Year 2000 Project
Management Awareness. These statements require financial institutions to, among
other things, examine the Year 2000 implications of reliance on vendors, data
exchange and potential impact on customers, suppliers and borrowers. These
statements also require each federally regulated financial institution to survey
its exposure, measure its risk and prepare a plan in order to solve the Year
2000 issue. In addition, the federal banking regulators have issued safety and
soundness guidelines to be followed by insured depository institutions, such as
the Bank, to assure resolution of any Year 2000
9
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FIRST SAVINGS BANCORP, INC.
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problems. The federal banking agencies have asserted that Year 2000 testing and
certification is a key safety and soundness issue in conjunction with regulatory
exams, and thus an institution's failure to address appropriately the Year 2000
issue could result in supervisory action, including such enforcement actions as
the reduction of the institution's supervisory ratings, the denial of
applications for approval of a merger or acquisition, or the imposition of civil
money penalties.
In order to address the Year 2000 issue and to minimize its potential adverse
impact, management is engaged in a process to identify areas that will be
affected by the Year 2000, assess their potential impact on operations, monitor
the progress of third party software vendors in addressing the matter, test
changes provided by these vendors, and develop contingency plans for any
critical systems which are not effectively reprogrammed. The plan is divided
into the five phases: (1) awareness, (2) assessment, (3) renovations, (4)
validation, and (5) implementation.
First Savings has substantially completed the first two phases of the plan and
is currently working internally and with external vendors on the final three
phases. First Savings outsources its item processing operations to a service
provider. First Savings' Year 2000 compliance is being closely coordinated with
that of the service provider.
First Savings does not currently expect that the cost of its Year 2000
compliance program will be material to its financial condition or results of
operations, and expects that it will satisfy such compliance program without
material disruption of its operations. In the event that First Savings'
significant suppliers do not successfully and timely achieve Year 2000
compliance, First Savings' business, results of operations or financial
condition could be adversely affected.
10
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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.
FIRST SAVINGS BANCORP, INC.
/s/ WILLIAM E. SAMUELS, JR.
___________________________ __________________________________________
Date William E. Samuels, Jr.
President
/s/ TIMOTHY S. MAPLES
___________________________ __________________________________________
Date Timothy S. Maples
Vice President/ Chief Financial Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,304
<INT-BEARING-DEPOSITS> 3,255
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 63,974
<INVESTMENTS-CARRYING> 9,400
<INVESTMENTS-MARKET> 9,765
<LOANS> 210,293
<ALLOWANCE> 596
<TOTAL-ASSETS> 295,703
<DEPOSITS> 212,607
<SHORT-TERM> 10,000
<LIABILITIES-OTHER> 3,144
<LONG-TERM> 0
0
0
<COMMON> 35,379
<OTHER-SE> 34,573
<TOTAL-LIABILITIES-AND-EQUITY> 295,703
<INTEREST-LOAN> 4,224
<INTEREST-INVEST> 1,330
<INTEREST-OTHER> 25
<INTEREST-TOTAL> 5,579
<INTEREST-DEPOSIT> 2,520
<INTEREST-EXPENSE> 2,710
<INTEREST-INCOME-NET> 2,869
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 984
<INCOME-PRETAX> 2,046
<INCOME-PRE-EXTRAORDINARY> 2,046
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,294
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.32
<YIELD-ACTUAL> 3.93
<LOANS-NON> 255
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 255
<ALLOWANCE-OPEN> 596
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 596
<ALLOWANCE-DOMESTIC> 200
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 396
</TABLE>
