UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1996
Commission file number 0-24606
NORTHWEST EQUITY CORP.
(exact name of small business issuer as specified in its charter)
Wisconsin 39-1772981
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
234 Keller Avenue South 54001
Amery, Wisconsin (Zip code)
(Address of principal executive offices)
(715) 268-7105
(Issuer's telephone number, including area code)
Check 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 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.
(1) Yes __x__ No_____
(2) Yes __x__ No_____
The number of shares outstanding of the issuer's common stock, $1.00 par
value per share, was 929,267 at September 30, 1996.
SIGNATURES
In accordance with 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.
NORTHWEST EQUITY CORP.
Dated:___10/29/96____________ By: __/s/ Brian L. Beadle_________
(Brian L. Beadle, President
Principal Executive Officer and
Principal Financial and
Accounting Officer)
1
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PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis or Plan of Operation.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
The Registrant is not involved in any pending legal proceedings
involving amounts in the aggregate which management believes are material to the
financial condition and results of operations of the Registrant. On October 16,
1996, the Bank was informed that it will be named as a party to a lawsuit in the
near future involving a commercial loan that first appeared on the Watch List on
September 30, 1996. The lawsuit will start replevin proceedings against the
Bank's borrower and will involve several parties claiming interests in
collateral secured by the Bank's General Business Security Agreement. The Bank's
legal counsel believes the Bank should have sufficient legal grounds to expect
recovery from the Bank's collateral, personal guarantees, and the other parties
involved. The Board of Directors at its meeting October 8, 1996, decided to
establish an increased quarterly loss allowance until more information is
available to make a reasonable estimate of any losses that may occur. At this
writing, the summons and complaint has not been served and information such as
appraisals, personal financial statements, etc. is being assembled. Management
believes potential losses could be material to the financial condition and
results of operations of the Bank. In order to establish an order of magnitude
of the loss potential, a worst case scenario of no recovery on a loan of
$525,000 plus an overdraft of $83,000 less the current excess in the loan loss
reserve of $259,000, would produce an after-tax loss of approximately $209,000.
This amount would be approximately equal to the earnings for one quarter of the
current fiscal year.
Item 2. Changes in Securities. None
Item 3. Defaults upon Senior Securities. None
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Shareholders of the Company was held on August 13,
1996. There were 945,392 shares of common stock of the Company entitled to vote
at the Annual Meeting, and 923,301 shares present at the meeting by holders
thereof in person or by proxy, which constituted a quorum. The following is a
summary of the results of the votes:
Number of Votes
For Withheld
Nominees for Director for a Three-Year Term Expiring in 1999
Michael D. Jensen................................... 887,626 35,675
Donald M. Michels................................... 887,126 36,175
Number of Votes
For Against Abstained
Ratification of Keller & Yoder as independent auditors
for the fiscal year ending March 31, 1997........... 883,501 38,500 13,000
Item 5. Other Information. None
Item 6. Exhibits and Reports on Form 8-k.
a. No reports on Form 8-K were filed during the quarter for which
this report was filed.
2
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NORTHWEST EQUITY CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In Thousands)
September 30,
1996 March 31,
ASSETS (unaudited) 1996
----------- ----
Cash - including interest bearing deposits of $2,483
at September 30, 1996 and $2,465 at March 31, 1996 $3,559 $3,412
Securities available- for- sale - fair value 2,754 2,859
Mortgage backed securities - market value of $7,690
at September 30, 1996 and $5,386 at March 31, 1996 7,775 5,373
Loans held for sale - at market 472 717
Loans receivable - net 76,549 69,963
Foreclosed properties and properties subject to foreclosure 166 127
Investment in Federal Home Loan Bank stock at
cost - which approximates fair value 812 803
Premises and equipment 2,420 2,199
Accrued interest receivable 641 602
Prepaid expenses and other assets 353 300
------- -------
TOTAL ASSETS $95,501 $86,355
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Savings accounts $62,498 $57,256
Advances from Federal Home Loan Bank 16,245 12,556
Other borrowed money 4,418 4,356
Accounts payable and accrued expenses 749 308
Accrued income taxes - - 15
------ ------
Total liabilities 83,910 74,491
Stockholders' Equity
Preferred stock - $1 par value per share;
2,000,000 shares authorized; none issued - - - -
Common stock - $1 par value per share; 4,000,000 shares
authorized; 1,032,517 shares issued and outstanding 1,033 1,033
Additional paid-in capital 6,584 6,584
Net unrealized loss on securities available for sale (27) (34)
Less unearned restricted stock plan award (178) (319)
Less unearned Employee Stock Ownership
Plan compensation (630) (699)
Less treasury stock - at cost - 103,250 shares (1,105) (561)
Retained earnings - substantially restricted 5,914 5,860
----- -----
Total stockholders' equity 11,591 11,864
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $95,501 $86,355
======= =======
See accompanying Notes to Consolidated Financial Statements
3
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<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In Thousands except for per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
<S> <C> <C> <C> <C>
1996 1995 1996 1995
Interest income:
Interest and fees on loans $1,673 $1,473 $3,271 $2,826
Interest on mortgage-backed securities 142 71 282 133
Interest and dividends on investments 53 52 117 106
----- --- ---- ---
Total interest income 1,868 1,596 3,670 3,065
----- ----- ----- -----
Interest expense:
Interest on savings 732 645 1,427 1,239
Interest on borrowings 278 170 555 283
--- --- ---- ---
Total interest expense 1,010 815 1,982 1,522
----- --- ----- -----
Net interest income 858 781 1,688 1,543
Provision for loan losses 25 6 31 12
--- -- --- --
Net interest income after provision for loan losses 833 775 1,657 1,531
--- --- ----- -----
Other income:
Mortgage servicing fees 19 17 38 35
Service charges on deposits 54 59 112 119
Gain on sale of mortgage loans 15 10 30 18
Other 53 51 101 77
--- --- --- --
Total other income 141 137 281 249
--- --- --- ---
General and administrative expenses:
Salaries and employee benefits 316 225 623 456
Net occupancy expense 67 63 134 123
Data processing 30 35 67 69
Federal insurance premiums 383 31 418 62
Other 158 152 289 276
--- --- --- ---
Total general and administrative expense 954 506 1,531 986
--- --- ----- ---
Income before income taxes 20 406 407 794
` `
Income taxes 8 177 172 331
- --- --- ---
Net income $ 12 $229 $235 $463
==== ==== ==== ====
Earnings per share: $0.01 $0.25 $0.27 $0.50
----- ----- ----- -----
See accompanying Notes to Consolidated Financial Statements
</TABLE>
4
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<TABLE>
NORTHWEST EQUITY CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(UNAUDITED)
(In Thousands)
<CAPTION>
Unrealized
Gain(Loss) Unearned
Additional On Securities Unearned ESOP
Common Paid-in Available Restricted Compen- Treasury Retained
Stock Capital For Sale Stock sation Stock Earnings Total
Six Months Ended September 30, 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - March 31, 1995 $1,033 $6,584 ($107) - - (826) - - 5354 $12,038
Net income - - - - - - - - - - - - 463 463
Adjustment of carrying value of securities
available for sale, net of deferred taxes of $41 - - - - 64 - - - - - - - - 64
Amortization of unearned ESOP and restricted
stock award - - - - - - - - 46 - - - - 46
Purchase of Treasury Stock - - - - - - - - - - - - - - - -
Cash dividends - $.08 per share - - - - - - - - - - (155) (155)
Balance - September 30, 1995 $1,033 $6,584 ($43) $- - ($780) $ - - $5,662 $12,456
====== ====== ===== ==== ====== ====== ====== =======
Six Months Ended September 30, 1996
Balance - March 31, 1996 $1,033 $6,584 ($34) ($319) ($699) ($561) $5,860 $11,864
Net income - - - - - - - - - - - - 235 235
Adjustment of carrying value of securities
available for sale, net of deferred taxes of $5 - - - - 7 - - - - - - - - 7
Amortization of unearned ESOP and restricted
stock award - - - - - - 141 69 - - - - 210
Purchase of Treasury Stock - - - - - - - - - - (544) - - (544)
Cash dividends - $.10 per share - - - - - - - - - - - - (181) (181)
Balance - September 30, 1996 $1,033 $6,584 ($27) ($178) ($630) ($1,105) $5,914 $11,591
====== ====== ===== ====== ====== ======== ======= =======
See accompanying Notes to Consolidated Financial Statements
</TABLE>
5
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NORTHWEST EQUITY CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In Thousands)
Six Months Ended
September 30,
1996 1995
Cash provided by operating activities:
Net income $235 $463
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation 48 49
Provision for loan losses 31 12
Amortization of ESOP and restricted stock awards 210 - -
Proceeds from sales of mortgage loans 3,279 2,811
Loans originated for sale (3,004) (2,793)
Decrease (increase) accrued interest receivable (39) (96)
Decrease(increase) prepaid expenses and other assets (53) (400)
Increase (decrease) accrued interest payable (69) (35)
Increase(decrease) accrued income taxes payable (15) (73)
Increase(decrease) other accrued liabilities 510 144
----- ---
Net cash provided by operating activities 1,133 82
----- --
Cash provided by investing activities:
Principal collected on long-term loans 15,220 10,463
Long-term loans originated or acquired (21,943) (18,367)
Purchases of mortgage-backed securities (2,766) (3,917)
Principal collected on mortgage-backed securities 364 251
Proceeds from sale of foreclosed property 44 - -
Purchase of office properties and equipment (269) (100)
Purchase of investments 96 (201)
------- --------
Net cash provided by (used in) investing activities (9,254) (11,871)
------- --------
Cash provided by financing activities:
Net increase (decrease) in savings accounts 5,242 4748
Net increase(decrease) in short term borrowings 393 6207
Repayments of long-term financing (411) (600)
Proceeds from long-term financing 3,769 550
Purchases of treasury stock (544) - -
Dividends paid (181) - -
------ ---
Net cash provided by (used in) financing activities 8,268 10,905
------ ------
Increase (decrease) in cash and equivalents 147 (884)
Cash and equivalents - beginning 3,412 3,086
----- -----
Cash and equivalents - ending $3,559 $2,202
====== ======
Supplemental disclosures of cash flow information:
Loans receivable transferred to foreclosed properties
and properties subject to foreclosure $83 $121
Properties subject to foreclosure transferred to
loans receivable $- - $- -
See accompanying Notes to Consolidated Financial Statements
6
<PAGE>
NORTHWEST EQUITY CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies:
The accompanying unaudited consolidated financial statements have been
prepared by the Company in accordance with the accounting policies described in
the Bank's audited financial statements for the year ended March 31, 1996, and
should be read in conjunction with the financial statements and notes which
appear in that report. These statements do not include all the information and
disclosures required by generally accepted accounting principles. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered for a fair presentation have been included.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF
NORTHWEST EQUITY CORP.
Comparison of Operating Results for the Three Months Ended September 30, 1995
and September 30, 1996
Net Income
Net income for the three months ended September 30, 1996, decreased $217,000 or
94.8% to $12,000 compared to $229,000 for the three months ended September 30,
1995. The decrease in net income was primarily due to a one time $350,000
Federal Deposit Insurance Corporation (FDIC) Special Assessment for the three
months ended September 30, 1996. The charge stems from recent legislation that
recapitalizes the FDIC fund insuring deposits in savings institutions. In
exchange for this one-time assessment, the future premiums paid to the Savings
Association Fund (SAIF) will be reduced by about 70 percent, to 6.4 cents from
23 cents per $100 of deposits. The charge will be more than offset by the
reduction in future premiums (See Current Developments Section). Salaries and
employee benefits increased $91,000 from $225,000 for the three months ended
September 30, 1995, to $316,000 for the three months ended September 30, 1996.
The increase reflects $70,000 for the three months ended September 30, 1996, in
expense from accounting for the Company's stock incentive plan that requires
under applicable accounting standards that 61.1% of the three-year cost be
amortized in the first year. The accounting for this expense did not begin until
the approval of the Company's stock incentive plan in October 1995; and
therefore no expense was taken for the three months ended September 30, 1995.
This increase in expense was partially offset by an increase of $77,000 in net
interest income from $781,000 for the three months ended September 30, 1995, to
$858,000 for the three months ended September 30, 1996, and an increase of
$4,000 in total other income from $137,000 for the three months ended September
30, 1995, to $141,000 for the three months ended September 30, 1996
Net Interest Income
Net interest income increased by $77,000 from $781,000 for the three months
ended September 30, 1995, to $858,000 for the three months ended September 30,
1996. Interest income increased $272,000 to $1.9 million for the three months
ended September 30, 1996, compared to $1.6 million for the three months ended
September 30, 1995, while interest expense increased only $195,000 to $1.0
million for the three months ended September 30, 1996, from $815,000 for the
three months ended September 30, 1995
Interest Income
Interest income increased $272,000 or 17.0% to $1.9 million for the three months
ended September 30, 1996, compared to $1.6 million for the three months ended
September 30, 1995. Of the increase, $200,000 was due to an increase in interest
and fees on loans to to $1.7 million for the three months ended September 30,
1996, compared to $1.5 million for the three months ended September 30, 1995.
This increase was due to the increase in the average outstanding balance of
total loans to $75.8 million for the three months ended September 30, 1996,
compared to $64.6 million for the three months ended September 30, 1995. The
increase in total loans reflects the general increase in mortgage interest rates
over the comparable periods that encouraged the bank's customers to seek
adjustable rate loans that are held in house as opposed to fixed-rate loans that
are sold on the secondary market. The remaining increase was due to a $71,000
increase in interest on mortgage-backed and related securities to $142,000 for
the three months ended September 30, 1996, from $71,000 for the three months
ended September 30, 1995. This increase was due to an increase in the average
outstanding balance of mortgage backed and related securities from $4.5 million
for the three months ended September 30, 1995, to an average outstanding balance
of $7.8 million for the three months ended September 30, 1996. The increase was
the result of the purchase of $2.8 million
8
<PAGE>
MANAGEMENT'S DISCUSSION (CONT.)
of additional securities to meet increased Wisconsin Department of Financial
Institutions liquidity requirements. Interest on investments increased $1,000 to
$53,000 for the three months ended September 30, 1996, compared to $52,000 for
the three months ended September 30, 1995.
Interest Expense
Interest expense increased $195,000 or 23.9% to $1.0 million for the three
months ended September 30, 1996, compared to $815,000 for the three months ended
September 30, 1995. Interest on savings increased $87,000 or 13.5% from $645,000
for the three months ended September 30, 1995, to $732,000 for the three months
ended September 30, 1996. The increase reflects an increase in the average
outstanding balances of total deposits to $60.4 million for the three months
ended September 30, 1996, from an average outstanding balance of $53.4 million
for the three months ended September 30, 1995, and an increase in rates paid.
Interest on borrowings increased $108,000 or 63.5% from $170,000 for the three
months ended September 30, 1995, to $278,000 for the three months ended
September 30, 1996. The increase reflects an increase in the average outstanding
balance of advances and other borrowings from $10.2 million for the three months
ended September 30, 1995, to 19.9 $million for the three months ended September
30, 1996. The increase in advances and other borrowings was used to fund the
increase in assets between the periods.
Provision for Loan Losses
The provision for loan losses increased $19,000 to $25,000 for the three months
ended September 30, 1996, compared to $6,000 for the three months ended
September 30, 1995. The increase reflects the Board of Directors' recognition of
a commercial loan that appeared on the September 30, 1996, watch list for the
first time. Unable to make an informed estimate of the loss potential, the Board
decided to establish an increased quarterly loss allowance until more
information is available to make a reasonable estimate of any losses that may
occur (See Part II, Item 1, Legal Proceedings). The allowance for loan losses
totaled $447,000 at September 30, 1996, compared to $443,000 at September 30,
1995, and represented 0.58% and 0.71% of gross loans and 46.0% and 106.30% of
non-performing loans, respectively. When compared to the allowance for loan
losses calculation that is based on a three year actual loss average, the Board
of Directors believes the allowance for loan losses is at an adequate level to
provide for potential loan losses and that future provisions for loan losses
will be at levels necessary to cover only charge-offs and general increases in
gross loans. The non-performing assets to total assets ratio was 1.20% at
September 30, 1996, compared to 1.07% at September 30, 1995.
Other Income
Total other income increased 2.9% or $4,000 to $141,000 for the three months
ended September 30, 1996, compared to $137,000 for the three months ended
September 30, 1995. The increase includes a $5,000 increase in gain on sale of
mortgage loans to $15,000 for the three months ended September 30, 1996,
compared, to $10,000 for the three months ended September 30, 1995. Other income
increased $2,000 from $51,000 for the three months ended September 30, 1995, to
$53,000 for the three months ended September 30, 1996. Service charges on
deposits decreased $5,000 to $54,000 for the three months ended September 30,
1996, compared, to $59,000 for the three months ended September 30, 1995.
General and Administrative Expenses
General and administrative expenses increased $448,000 or 88.5% to $954,000 for
the three months ended September 30, 1996, compared to $506,000 for the three
months ended September 30, 1995. Salaries and employee benefits increased
$91,000 from $225,000 for the three months ended September 30, 1995, to $316,000
for the three months ended September 30, 1996. The increase reflects $70,000 for
the three months ended September 30, 1996, in expense from accounting for the
Company's stock incentive plan that requires under applicable accounting
standards that 61.1% of the three-year cost be amortized in the first year. The
9
<PAGE>
MANAGEMENT'S DISCUSSION (CONT.)
accounting for this expense did not begin until the approval of the
Company's stock incentive plan in October 1995; and therefore no expense was
taken for the three months ended September 30, 1995. Net occupancy expense
increased $4,000 from $63,000 for the three months ended September 30, 1995, to
$67,000 for the three months ended September 30, 1996, and reflects the
completion of an addition and remodeling project to the New Richmond office
location. Other expenses increased $6,000 from $152,000 for the three months
ended September 30, 1995, to $158,000 for the three months ended September 30,
1996. Federal insurance premiums increased $352,000 from $31,000 for the three
months ended September 30, 1995, to $383,000 for the three months ended
September 30, 1996. The increase is due to one-time $350,000 Federal Deposit
Insurance Corporation (FDIC) Special Assessment for the three months ended
September 30, 1996. The charge stems from recent legislation that recapitalizes
the FDIC fund insuring deposits in savings institutions. In exchange for this
one-time assessment, the future premiums paid to the Savings Association Fund
(SAIF) will be reduced by about 70 percent, to 6.4 cents from 23 cents per $100
of deposits. The charge will be more than offset by the reduction in future
premiums (See Current Developments Section).
Income Tax Expense
Income tax expense decreased $169,000 or 95.5% from $177,000 for the three
months ended September 30, 1995, to $8,000 for the three months ended September
30, 1996. The decrease in income tax expense is the direct result of the
decrease in income before taxes of $386,000 from $406,000 for the three months
ended September 30, 1995, to $20,000 for the three months ended September 30,
1996. The effective tax rate for the three months ended September 30, 1996, was
40.0% compared to 43.6% for the three months ended September 30, 1995.
Comparison of Operating Results for the Six Months Ended September 30, 1995 and
September 30, 1996
Net Income
Net income for the six months ended September 30, 1996, decreased $228,000 or
49.2% to $235,000 compared to $463,000 for the six months ended September 30,
1995. The decrease in net income was primarily due to a one time $350,000
Federal Deposit Insurance Corporation (FDIC) Special Assessment for the three
months ended September 30, 1996. The charge stems from recent legislation that
recapitalizes the FDIC fund insuring deposits in savings institutions. In
exchange for this one-time assessment, the future premiums paid to the Savings
Association Fund (SAIF) will be reduced by about 70 percent, to 6.4 cents from
23 cents per $100 of deposits. The charge will be more than offset by the
reduction in future premiums (See Current Developments Section). Salaries and
employee benefits increased $167,000 from $456,000 for the six months ended
September 30, 1995, to $623,000 for the six months ended September 30, 1996. The
increase reflects $140,000 for the six months ended September 30, 1996, in
expense from accounting for the Company's stock incentive plan that requires
under applicable accounting standards that 61.1% of the three-year cost be
amortized in the first year. The accounting for this expense did not begin until
the approval of the Company's stock incentive plan in October 1995; and
therefore no expense was taken for the six months ended September 30, 1995. This
increase in expense was partially offset by an increase of $145,000 in net
interest income from $1.5 million for the six months ended September 30, 1995,
to $1.7 million for the six months ended September 30, 1996, and an increase of
$32,000 in total other income from $249,000 for the six months ended September
30, 1995, to $281,000 for the six months ended September 30, 1996
10
<PAGE>
MANAGEMENT'S DISCUSSION (CONT.)
Net Interest Income
Net interest income increased by $145,000 from $1.5 million for the six months
ended September 30, 1995, to $1,7 million for the six months ended September 30,
1996. Interest income increased $605,000 to $3.7 million for the six months
ended September 30, 1996, compared to $3.1 million for the six months ended
September 30, 1995, while interest expense increased only $460,000 to $2.0
million for the six months ended September 30, 1996, from $1.5 million for the
six months ended September 30, 1995. The improvement in net interest income
primarily reflects an increase in the average outstanding balance of
interest-earning assets of $15.7 million from $70.4 million for the six months
ended September 30, 1995, compared to $86.1 million for the six months ended
September 30, 1996.
Interest Income
Interest income increased $605,000 or 19.5% to $3.7 million for the six months
ended September 30, 1996, compared to $3.1 million for the six months ended
September 30, 1995. Of the increase, $445,000 was due to an increase in interest
and fees on loans to $3.3 million for the six months ended September 30, 1996,
compared to $2.8 million for the six months ended September 30, 1995. This
increase was due to the increase in the average outstanding balance of total
loans to $74.1million for the six months ended September 30, 1996, compared to
$62.4 million for the six months ended September 30, 1995. The increase in total
loans reflects the general increase in mortgage interest rates over the
comparable periods that encouraged the bank's customers to seek adjustable rate
loans that are held in house as opposed to fixed-rate loans that are sold on the
secondary market. The remaining increase was primarily due to a $149,000
increase in interest on mortgage-backed and related securities to $282,000 for
the six months ended September 30, 1996, from $133,000 for the six months ended
September 30, 1995. This increase was due to an increase in the average
outstanding balance of mortgage backed and related securities from $4.0 million
for the six months ended September 30, 1995, to an average balance of $7.8
million for the six months ended September 30, 1996. This increase was the
result of the purchase of $2.8 million of additional securities to meet
increased Wisconsin Department of Financial Institutions liquidity requirements.
Interest on investments increased $11,000 to $117,000 for the six months ended
September 30, 1996, compared to $106,000 for the six months ended September 30,
1995, as a result of an increase in the average outstanding balances of
interest-bearing deposits in other financial institutions, securities held for
sale, and Federal Home Loan Bank stock from $3.9 million for the six months
ended September 30, l995, to $4.2 million for the six months ended September 30,
1996.
Interest Expense
Interest expense increased $460,000 or 30.7% to $2.0 million for the six months
ended September 30, 1996, compared to $1.5 million for the six months ended
September 30, 1995. Interest on savings increased $188,000 or 15.7% from $1.2
million for the six months ended September 30, 1995, to $1.5 million for the six
months ended September 30, 1996. The increase reflects an increase in the
average outstanding balance of total deposits to $61.0 million for the six
months ended September 30, 1996, from an average balance of $52.7 million for
the six months ended September 30, 1995. Interest on borrowings increased
$272,000 or 96.1% from $283,000 for the six months ended September 30, 1995, to
$555,000 for the six months ended September 30, 1996. The increase reflects an
increase in average outstanding balance of advances and other borrowings from
$8.7 million for the six months ended September 30, 1995, to $19.4 million for
the six months ended September 30, 1996. The increase in advances and other
borrowings was used to fund the increase in assets between the periods.
11
<PAGE>
MANAGEMENT'S DISCUSSION (CONT.)
Provision for Loan Losses
The provision for loan losses increased $19,000 to $31,000 for the six months
ended September 30, 1996, compared to $12,000 for the six months ended September
30, 1995. The increase reflects the Board of Directors' recognition of a
commercial loan that appeared on the September 30, 1996, watch list for the
first time. Unable to make an informed estimate of the loss potential, the Board
decided to establish an increased quarterly loss allowance until more
information is available to make a reasonable estimate of any losses that may
occur (See Part II, Item 1, Legal Proceedings). The allowance for loan losses
totaled $447,000 at September 30, 1996, compared to $443,000 at September 30,
1995, and represented 0.58% and 0.71% of gross loans and 46.0% and 106.30% of
non-performing loans, respectively. When compared to the allowance for loan
losses calculation that is based on a three year actual loss average, the Board
of Directors believes the allowance for loan losses is at an adequate level to
provide for potential loan losses and that future provisions for loan losses
will be at levels necessary to cover only charge-offs and general increases in
gross loans. The non-performing assets to total assets ratio was 1.2% at
September 30, 1996, compared to 1.07% at September 30, 1995.
Other Income
Total other income increased $32,000 or 12.9% to $281,000 for the six months
ended September 30, 1996, compared to $249,000 for the six months ended
September 30, 1995. The increase includes a $12,000 increase in gain on sale of
mortgage loans to $30,000 for the six months ended September 30, 1996 compared,
to $18,000 for the six months ended September 30, 1995. Other income increased
$24,000 from $77,000 for the six months ended September 30, 1995 to $101,000 for
the six months ended September 30, 1996, and reflects real estate lot sales in
the bank's subsidiary of $49,000 for the six months ended September 30, 1996,
compared to $17,000 for the six months ended September 30, 1995.
General and Administrative Expenses
General and administrative expenses increased $545,000 or 54.5% to $1.5 million
for the six months ended September 30, 1996, compared to $1.0 million for the
six months ended September 30, 1995. Salaries and employee benefits increased
$167,000 from $456,000 for the six months ended September 30, 1995, to $623,000
for the six months ended September 30, 1996. The increase reflects $140,000 for
the six months ended September 30, 1996, in expense from accounting for the
Company's stock incentive plan that requires under applicable accounting
standards that 61.1% of the three-year cost be amortized in the first year. The
accounting for this expense did not begin until the approval of the Company's
stock incentive plan in October 1995; and therefore no expense was taken for the
six months ended September 30, 1995. Net occupancy expense increased $11,000
from $123,000 for the six months ended September30, 1995, to $134,000 for the
six months ended September 30, 1996, and reflects the completion of an addition
to and remodeling of the New Richmond office location.. Other expenses increased
$13,000 from $276,000 for the six months ended September 30, 1995, to $289,000
for the six months ended September 30, 1996. Federal insurance premiums
increased $356,000 from $62,000 for the six months ended September 30, 1995, to
$418,000 for the six months ended September 30, 1996. The increase is due to
one-time $350,000 Federal Deposit Insurance Corporation (FDIC) Special
Assessment for the three months ended September 30, 1996. The charge stems from
recent legislation that recapitalizes the FDIC fund insuring deposits in savings
institutions. In exchange for this one-time assessment, the future premiums paid
to the Savings Association Fund (SAIF) will be reduced by about 70 percent, to
6.4 cents from 23 cents per $100 of deposits. The charge will be more than
offset by the reduction in future premiums (See Current Developments Section).
12
<PAGE>
MANAGEMENT'S DISCUSSION (CONT.)
Income Tax Expense
Income tax expense decreased $159,000 or 48.0% from $331,000 for the six months
ended September 30, 1995, to $172,000 for the six months ended September 30,
1996. The decrease in income tax expense is the direct result of a decrease in
income before taxes of $387,000 from $794,000 for the six months ended September
30, 1995, to $407,000 for the six months ended September 30, 1996. The effective
tax rate for the six months ended September 30, 1996, was 42.3% compared to
41.7% for the six months ended September 30, 1995.
Financial Condition
Total assets increased $9.1 million or 10.5% to $95.5 million at September 30,
1996, compared to $86.4 million at March 31, 1996. The increase is a result of a
$6.5 million or 9.3% increase in loans receivable-net to $76.5 million at
September 30, 1996, compared to $70.0 million at March 31, 1996. The increase in
loans receivable-net was the result of the expected seasonal increase of loan
activity during the spring and summer months. Cash increased $147,000 from $3.4
million at March 31, 1995, to $3.6 million at September 30, 1996. Securities
available for sale decreased $105,000 from $2.9 million at March 31, 1996, to
$2.8 million at September 30, 1996, as the result of the reduction in the
balance in money market mutual funds. Mortgage backed and related securities
increased $2.4 million from $5.4 million on March 31, 1996, to $7.8 million at
September 30, 1996, as the net result of the purchase of an $2.8 million of
additional securities The additional securities were purchased to meet an
increase in the liquidity requirement imposed by the Wisconsin Department of
Financial Institutions from 5% to 8% of selected liabilities.
Savings accounts increased $5.2 million from $57.3 million at March 31, 1996, to
$62.5 million at September 30, 1996. The increase in savings accounts was used
to fund the increase in loans receivable. Outstanding advances from the Federal
Home Loan Bank increased $3.6 million from $12.6 million at March 31, 1996, to
$16.2 million at September 30, 1996. Of the increase, $2.8 million in advances
were used to fund the purchase of the additional mortgage backed and related
securities required by the increase in the Wisconsin Department of Financial
Institution's liquidity requirement. The remaining $0.8 million was used to fund
a portion of the increase in loans receivable.
Shareholders Equity decreased $285,000 from $11.9 million at March 31, 1996, to
$11.6 million at September 30, 1996. The decrease is due to the purchase of an
additional $544,000 in treasury stock that changed the treasury stock balance
from ($0.6 million) at March 31, 1996, to ($1.1 million) at September 30, 1996.
This decrease is offset by the amortization of the unearned Employee Stock
Ownership Plan compensation of $69,000 from ($699,000) on March 31, 1996 to
($630,000) on September 30, 1996; the amortization of the unearned restricted
stock plan award of $141,000 from ($319,000) at March 31, 1996, to ($178,000) at
September 30, 1996; an increase in the net unrealized loss on securities held
for sale of $7,000 from ($34,000) at March 31, 1996 to ($27,000) at September
30, 1996; and the increase of $42,000 in retained earnings from $5.86 million at
March 31, 1996, to $5.90 million at September 30, 1996.
13
<PAGE>
MANAGEMENT'S DISCUSSION (CONT.)
Current Developments
Deposits of the Bank currently are insured to applicable limits by the
FDIC under the Savings Association Insurance Fund ("SAIF"). The FDIC also
insures commercial bank deposits under the Bank Insurance Fund ("BIF"). Premium
levels were set for each fund to facilitate the fund achieving its designated
reserve ratio. As the funds reach their designated ratios, the FDIC has
authority to lower fund premium assessments to rates sufficient to maintain the
designated reserve ratio. In May 1995, the BIF achieved its designated ratio and
the FDIC lowered BIF premium rates for most BIF-insured institutions. In
November 1995, the FDIC reduced assessment rates by four cents per $100 of
deposits for all institutions, producing a premium rate schedule ranging from 0%
(i.e. whereby such institutions will be subject only to a $2,000 minimum annual
premium) to 0.27% of deposits depending on the institution's risk-based premium
category. Based on these assessment rate modifications, the majority of BIF
members paid only a $2,000 minimum annual premium and, therefore, BIF-insured
institutions paid, on average, 0.43 cents per $100 of deposits. The SAIF had not
achieved its designated reserve ratio and was not anticipated to do so prior to
the year 2001. Therefore, SAIF premium rates for SAIF-insured members continued
to be set at an average of 23.7 cents per $100 of deposits. As a result of the
new assessment rate provisions, SAIF member institutions were placed at a
competitive disadvantage based on higher deposit insurance premium On September
30, 1996, President Clinton signed banking legislation to resolve the deposit
insurance premium disparity. The banking package also included extensive
regulatory relief for banks and thrifts. The BIF-SAIF package contains the
following core elements for resolving the deposit premium disparity:
Special Assessment. A one-time special assessment on SAIF deposits will
be imposed to bring the fund's reserve ration to the statutory 1.25 percent. The
assessment rate will be approximately 65.7 basis points on deposits as of March
31, 1995. The bill clarifies that the special assessment is deductible for tax
purposes in the year paid. The special assessment amounted to $350,000 to the
Bank and is reflected in the current financial data reported as of September 30,
1996.
FICO Sharing. Pro-rata sharing of the Financing Corporation obligation
among BIF-SAIF members will begin by January l, 2000. This obligation was
previously paid by only SAIF members. SAIF members will have paid the full $780
million amount of the FICO obligation for this year. From 1997 through 1999,
partial sharing will occur, with SAIF deposits assessed 6.44 basis points and
BIF deposits 1.29 basis points.
SAIF and BIF Rates. Through December 31, 1998, the assessment rate for
SAIF deposits cannot be lower than the rate for BIF deposits.
Reserve Ration, Rebates The FDIC is prohibited from setting the
semiannual assessment at a rate in excess of what's needed to maintain or meet
the required reserve ratio. Until the funds are merged, the FDIC is permitted to
rebate or credit excess premiums to BIF members only.
Deposit Migration For a three-year period, the banking regulators are
authorized to prevent SAIF-insured institutions from "facilitating or
encouraging" customers to shift their deposits to BIF-insured affiliates for the
purpose of evading the SAIF premium.
Funds Merger. The BIF and SAIF insurance funds will merge to form the
Deposit Insurance Fund on January 1, 1999, if there are no savings associations
(not including state savings banks) in existence on that date. The statute is
silent on when, how or if rechartering will occur.
Timetable. Pro-rata FICO sharing will begin and the ban on deposit
shifting will end on the earlier of January 1, 2000, or when the last savings
association ceases to exist.
Charter Reform. The Treasury Department is directed to report to
Congress by March 31, 1997, with its recommendations on a common charter for
banks and savings institutions.
14
<PAGE>
MANAGEMENT'S DISCUSSION (CONT.)
BIF-SAIF RECAPITALIZATION ANALYSIS
Assuming the Bank's deposits to be approximately $60 million:
The added cost in 1996 is
$350,000 special assessment provided for as of September 30, 1996.
less l8,000 in fourth quarter refund in 1996
$332,000 in added premium for 1996
Premium Savings in Future Years
Assume that the present SAIF premium schedule would recapitalize the
SAIF in 2003. At that point the lowest "pure FICO" SAIF premium would drop to
only 16 basis points. Thereafter, the SAIF premium would stay at 16 basis points
until 2017 when the FICO bonds begin to mature, and SAIF premiums can decline to
the same level as BIF premiums. (All this analysis presumes that the current,
essentially zero, loss rate for both BIF and SAIF continues, or alternatively
that BIF and SAIF rates are equal over time.)
This establishes the SAIF rates without the new law.
Under the new law, SAIF premiums will 6.4 basis points for 1997, 1998,
and 1999. Then pro rata FICO sharing begins. The premium is 2.4 basis points
until 2017, when the FICO bonds begin to mature.
For approximately $60 million of deposits, the annual savings from 1997
onwards are:
$100,000 for 6 years = $ 600,000
$ 82,000 for 15 years = $1,230,000
$ 33,000 for 1 year = $ 33,000
$ 9,000 for 1 year = $ 9,000
-------------
Total Savings $1,872,000
Thus, the undiscounted savings are over five times larger than the
up-front cost. The pay-back period is under four years. On a more sophisticated
present value basis, if the recapitalization payment is viewed as an investment
and the return as the lower stream of premium payments, the annual yield or
internal rate of return is almost exactly 25%. (Source: America's Community
Bankers) The present value of the lower stream of premiums using a 10% annual
interest rate assumption would be approximately $792,000 compared to the present
cost of $332,000. This presentation assumes that the SAIF fund would have
remained viable over that 23 year time period and its members would have
accepted the premium disparity and not have developed ways to exit the fund to
avoid payment.
FDI Act
Under the FDI Act, insurance of deposits may be terminated by the FDIC
upon a finding that the institution has engaged in unsafe or unsound practices,
is in an unsafe or unsound condition operations or has violated any applicable
law, regulation, rule, order or condition imposed by the FDIC or the Department
of Financial Institutions. Management of the Bank does not know of any practice,
condition or violation that might lead to the termination of deposit insurance.
On October 5, 1994, the FDIC issued an "Advanced Notice of Proposed
Rulemaking" pursuant to which the FDIC is soliciting comments on whether the
deposit-insurance assessment base currently provided for in the FDIC's
assessment regulations should be redefined. As a result of the recent transition
to a risk-based deposit insurance system, effective January 1, 1994, the
assessment base, which had been determined by statute pursuant to the
FDI Act, is now determined by the FDIC by regulation. At present,
15
<PAGE>
MANAGEMENT'S DISCUSSION (CONT.)
however, the FDIC's assessment base regulations continue to be based on the
statutory provisions under the FDI Act. Under current law, insurance premiums
paid to the FDIC are calculated by multiplying the institution's assessment base
(which equals total domestic deposits, as adjusted for certain elements) by its
assessment rate.
Considering the change to the new deposit insurance system, developments
in the financial services industry, changes in the activities of depository
institutions and other factors, the FDIC seeks comments on whether the
assessment base should be redefined. The FDIC has stated that review of the
definition of "assessment base" does not signal any intent to enhance the total
dollar amount of assessments collected, but that such redefinition may impact
the assessments paid on an institution-by-institution basis. Until final
regulations are adopted affecting the definition of an institution's assessment
base, the Bank cannot predict what impact such regulation may have on Bank
operations.
Asset/Liability Management
Asset/liability management is an ongoing process of matching asset and liability
maturities to reduce interest rate risk. Management attempts to control this
risk through pricing of assets and liabilities and maintaining specific levels
of maturities. In recent periods, management's strategy has been to (1) sell
substantially all new originations of long-term, fixed-rate single family
mortgage loans in the secondary market, (2) invest in various adjustable-rate
and short-term mortgage-backed and related securities, (3) invest in
adjustable-rate, single family mortgage loans, and (4) encourage medium and
longer-term certificates of deposit. The Company's estimated cumulative one-year
gap between assets and liabilities was a negative 9.6% of total assets, at
September 30, 1996. A negative gap occurs when a greater dollar amount of
interest-earning liabilities than interest-bearing assets are repricing or
maturing during a given time period. The Bank's three-year cumulative gap as of
September 30, 1996, was a negative 11.0%. During periods of rising interest
rates, a negative interest rate sensitivity gap will tend to negatively affect
net interest income. During periods of falling interest rates, a negative
interest rate sensitivity gap will tend to postively affect the net interest
income.
Management believes that its asset/liability management strategies have reduced
the potential effects of changes in interest rates on its operations. Increases
in interest rates may increase net interest income because interest-earning
assets will reprice more quickly than interest-bearing liabilities. The
Company's analysis of the maturity and repricing of assets and liabilities
incorporates certain assumptions concerning the amortization and prepayment of
such assets and liabilities.
Management believes that these assumptions approximate actual experience and
considers them reasonable, although the actual amortization and repayment of
assets and liabilities may vary substantially.
Management Strategy
Asset Quality
The Company emphasizes high asset quality in both its investment portfolio and
lending activities. Non-performing assets have ranged between 0.54% and 2.1% of
total assets during the last five fiscal years and were 1.0% of total assets at
September 30, 1996. Cumulative gross charge-offs over the last five fiscal years
of $464,000 were due primarily to commercial loans made in the mid-1980s. As of
September 30, 1996, the Board of Directors increased the quarterly loan loss
provision $19,000 to $25,000 the three months ended September 30, 1996, from
$6,000 for the three months ended June 30, 1996. The increase reflects the Board
of Directors' recognition of a commercial loan that appeared on the September
30, 1996, watch list for the first time. Unable to make an informed estimate of
the loss potential, the Board decided to
16
<PAGE>
MANAGEMENT'S DISCUSSION (CONT.)
establish an increased quarterly loss allowance until more information is
available to make a reasonable estimate of any losses that may occur (See Part
II, Item 1, Legal Proceedings). The Company's allowance for loan losses at
September 30, 1996, totaled $447,000 or 96.3% of cumulative gross charge-offs
during the last five fiscal years. Management currently believes the allowance
for loan losses at September 30, 1996, is at an adequate level and that future
provisions for loan losses will be at levels necessary only to cover charge-offs
and general increases in gross loans.
Total non-performing loans increased from 30 loans totaling $738,000 at
September 30, 1995, to 54 loans totaling $972,000 at September 30, 1996. Total
non-performing assets increased from 32 items totaling $859,000 at September 30,
1995, to 60 items totaling $1,150,00 at September 30, 1996. Total loans
delinquent 31--89 days increased from 64 loans totaling $1.1 million to 81 loans
totaling $1.8 million. The increase in the number of delinquent loans is
concentrated in the consumer loan department. Deliquencies were created by
certain deficiencies in dealer loan policies that subsequently have been
revised.
Management views the increase as a major area of concern warranting increased
scrutiny. However, the latest available peer group comparison of nonperforming
loans and real estate owned as a percentage of total
loans as prepared by America's Community Bankers at December 31, 1995, was 1.60%
of total loans on a nation wide basis and 0.86% on a regional basis.
Nonperforming loans and real estate owned as a percentage of total loans for the
Company was 1.26% at September 30, 1996, compared to 1.11% at September 30,
1995. As a percentage of assets, non-performing assets increased to 1.20% at
September 30, 1996, compared to 1.07% at September 30, 1995.
Selected Financial Ratios and Other Data: At or For the
Three months ended Six months ended
September 30, September 30,
Performance Ratios 1996 1995 1996 1995
---- ---- ---- ----
Return on average assets 0.05% 1.19% 0.51% 1.26%
Return on average equity 0.41% 7.41% 4.01% 7.55%
17
<PAGE>
<TABLE>
MANAGEMENT'S DISCUSSION(CONT.)
Average Balance Sheet
Three Months Ended September 30, Six Months Ended September 30,
-------------------------------- ------------------------------
1996 1995 1996 1995
<CAPTION>
---- ---- ---- ----
Average Average Average Average
Out- Interest Average Out- Interest Average Out- Interest Average Out- Interest Average
standing Earned/ Yield/ standing Earned/ Yield/ standing Earned/ Yield/ standing Earned/ Yield/
Balance Paid Rate Balance Paid Rate Balance Paid Rate Balance Paid Rate
------- ---- ---- ------- ---- ---- ------- ---- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Assets
Interest-earning assets:
Mortgage loans.....................$63,451 $1,380 8.70% $55,146 $1,221 8.86% $62,140 $2,680 8.63% $53,272 $2,341 8.79%
Commercial loans................... 4,403 106 9.63% 3,553 108 12.16% 4,467 226 10.12% 3,724 220 11.82%
Consumer loans..................... 7,956 187 9.40% 5,928 144 9.72% 7,449 365 9.80% 5,418 265 9.78%
----- ---- ----- ------ ---- ----- ------ ---- ----- ------ ---- -----
Total loans....................... 75,810 1,673 8.83% 64,627 1,473 9.12% 74,056 3,271 8.83% 62,414 2,826 9.06%
Mortgage-backed securities 7,844 142 7.24% 4,504 71 6.31% 7,793 282 7.24% 4,025 133 6.61%
Interest-bearing deposits in other
financial institutions............ 321 4 5.11% 550 8 5.45% 586 15 5.11% 602 18 5.90%
Securities available-for-sale...... 2,923 40 5.41% 2,916 36 4.99% 2,979 79 5.34% 2,886 74 5.13%
Federal Home Loan Bank stock....... 533 9 6.75% 462 8 6.75% 670 23 6.73% 436 14 6.51%
---- -- ----- ---- -- ----- ---- --- ----- ---- --- -----
Total interest-earning assets..... 87,431 1,868 8.55% 73,059 1,596 8.74% 86,084 3,670 8.53% 70,363 3,065 8.71%
Non-interest earning assets........ 6,219 4,054 5,782 3,327
------ ------ ------ -----
Total assets......................$93,650 $77,113 $91,866 $73,690
======= ======= ======= =======
Liabilities and Stockholders' Equity
Deposits:
NOW accounts......................$ 9,155 $ 40 1.73% $9,108 $ 44 1.93% $9,037 $ 78 1.73% $9,218 $ 82 1.77%
Money market deposit accounts..... 3,781 46 4.81% 285 3 4.21% 3,361 80 4.75% 209 4 4.21%
Passbook.......................... 6,729 38 2.28% 7,102 44 2.48% 6,980 79 2.26% 7,013 88 2.50%
Certificate of deposit............ 40,746 608 5.97% 36,953 554 6.00% 41,597 1,190 5.72% 36,265 1,065 5.88%
------ ---- ----- ------- ---- ----- ------- ----- ----- ------- ------ -----
Total deposits................... 60,411 732 4.84% 53,448 645 4.83% 60,975 1,427 4.68% 52,705 1,239 4.70%
Advances and other borrowings...... 19,885 278 5.59% 10,164 170 6.69% 19,444 555 5.71% 8,706 283 6.50%
------ ---- ----- ------- ---- ----- ------- ---- ----- ------ ---- -----
Total interest-bearing liabilities 80,296 1,010 5.03% 63,612 815 5.12% 80,419 1,982 4.93% 61,411 1,522 4.96%
------- ------ ------
Non-interest bearing liabilities(1) 1,699 1,121 695 11
Stockholders' equity............... 11,655 12,370 11,724 12,268
------ ------ ------ ------
Total liabilities and
stockholders' equity. $93,650 $77,113 $91,866 $73,690
======= ======== ======= =======
Net interest income/ $858 3.52% $781 3.61% $ 1,688 3.60% $1,543 3.76%
interest rate spread (2) ==== ===== ==== ===== ======= ===== ====== =====
Net earning assets/. $ 7,135 3.93% $9,447 4.28% $5,665 3.92% $ 8,952 4.39%
net interest margin(3) ======= ===== ======= ===== ====== ===== ======= =====
Average interest-earning assets to
average interest-bearing liabilities 1.09 1.15 1.07 1.15
==== ==== ==== ====
-----------
(1) Includes non-interest bearing checking accounts.
(2) Interest rate spread represents the difference between the average yield on interest-earning assets and the average rate on
interest-bearing liabilities.
(3) Net interest margin represents net interest income divided by average interest-earning assets.
</TABLE>
18
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<CASH> 1,076
<INT-BEARING-DEPOSITS> 2,483
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,754
<INVESTMENTS-CARRYING> 7,775
<INVESTMENTS-MARKET> 7,690
<LOANS> 77,021
<ALLOWANCE> 447
<TOTAL-ASSETS> 95,501
<DEPOSITS> 62,498
<SHORT-TERM> 15,299
<LIABILITIES-OTHER> 749
<LONG-TERM> 5,364
0
0
<COMMON> 1,033
<OTHER-SE> 10,558
<TOTAL-LIABILITIES-AND-EQUITY> 95,501
<INTEREST-LOAN> 3,271
<INTEREST-INVEST> 399
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 3,670
<INTEREST-DEPOSIT> 1,427
<INTEREST-EXPENSE> 1,982
<INTEREST-INCOME-NET> 1,688
<LOAN-LOSSES> 31
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,531
<INCOME-PRETAX> 407
<INCOME-PRE-EXTRAORDINARY> 235
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 235
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
<YIELD-ACTUAL> 360
<LOANS-NON> 875
<LOANS-PAST> 2
<LOANS-TROUBLED> 97
<LOANS-PROBLEM> 97
<ALLOWANCE-OPEN> 433
<CHARGE-OFFS> 36
<RECOVERIES> 9
<ALLOWANCE-CLOSE> 447
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
