UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] 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 0-27940
HARRINGTON FINANCIAL GROUP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Indiana 48-1050267
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
722 East Main
Richmond, Indiana 47374
- --------------------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
(765) 962-8531
- --------------------------------------------------------------------------------
(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 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 [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: As of May 14, 1999,
there were issued and outstanding 3,205,382 shares of the Registrant's Common
Stock, par value $.125 per share.
<PAGE>
HARRINGTON FINANCIAL GROUP, INC. AND SUBSIDIARY
TABLE OF CONTENTS
Page
----
Part I. Financial Information
- ------- ---------------------
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1999
(unaudited) and June 30, 1998 1
Consolidated Statements of Operations (unaudited) for the three
and nine months ended March 31, 1999 and 1998. 2
Consolidated Statements of Cash Flows (unaudited) for the nine
months ended March 31, 1999 and 1998. 3
Notes to Unaudited Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
Part II. Other Information
- -------- -----------------
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security-Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures
<PAGE>
<TABLE>
<CAPTION>
HARRINGTON FINANCIAL GROUP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(Dollars in Thousands)
(Unaudited)
March 31, June 30,
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Cash ............................................................. $ 1,328 $ 1,567
Interest-bearing deposits ........................................ 13,809 10,212
--------- ---------
Total cash and cash equivalents ................................ 15,137 11,779
Securities held for trading - at fair value
(amortized cost of $241,600 and $289,137) ...................... 242,897 290,609
Securities available for sale - at fair value
(amortized cost of $488 and $924) .............................. 525 922
Loans receivable, net ............................................ 260,929 163,546
Interest receivable, net ......................................... 2,191 2,318
Premises and equipment, net ...................................... 5,897 5,614
Federal Home Loan Bank of Indianapolis stock ..................... 4,878 4,878
Other ............................................................ 5,857 4,731
--------- ---------
Total assets ................................................... $ 538,311 $ 484,397
========= =========
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits ......................................................... $ 321,874 $ 178,311
Securities sold under agreements to repurchase ................... 135,650 240,396
Federal Home Loan Bank advances .................................. 40,000 26,000
Interest payable on securities sold under agreements to
repurchase ..................................................... 57 282
Other interest payable ........................................... 2,714 1,596
Note payable ..................................................... 13,995 13,495
Advance payments by borrowers for taxes & insurance .............. 1,463 785
Accrued expenses payable and other liabilities ................... 1,904 868
--------- ---------
Total liabilities .............................................. 517,657 461,733
--------- ---------
Minority Interest ................................................ 966 --
--------- ---------
Common stock ..................................................... 425 425
Additional paid-in-capital ....................................... 16,946 16,962
Treasury stock, 194,599 and 124,052 shares at cost ............... (2,162) (1,467)
Retained earnings ................................................ 4,457 6,745
Accumulated other comprehensive income (loss), net of taxes ...... 22 (1)
--------- ---------
Total stockholders' equity ..................................... 19,688 22,664
--------- ---------
Total liabilities and stockholders' equity ................... $ 538,311 $ 484,397
========= =========
</TABLE>
See notes to unaudited consolidated financial statements
-1-
<PAGE>
<TABLE>
<CAPTION>
HARRINGTON FINANCIAL GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Operations
(Dollars in Thousands Except Share Data)
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
---------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME
Securities held for trading ...................... $ 4,096 $ 6,585 $ 15,033 $ 19,121
Securities available for sale .................... 16 22 55 70
Loans receivable ................................. 4,412 2,256 11,316 6,007
Dividends on Federal Home Loan Bank stock ........ 96 96 293 295
Deposits ......................................... 167 115 444 696
Net interest expense on interest rate contracts
maintained in the trading portfolio ............ (53) (514) (606) (1,043)
-------- -------- -------- --------
Interest income .................................. 8,734 8,560 26,535 25,146
-------- -------- -------- --------
INTEREST EXPENSE
Deposits ......................................... 3,809 1,988 10,031 5,883
Federal Home Loan Bank advances .................. 706 460 1,860 1,349
Short-term borrowings ............................ 2,153 4,742 10,009 13,256
Long-term borrowings ............................. 266 256 834 693
-------- -------- -------- --------
Interest expense ................................. 6,934 7,446 22,734 21,181
-------- -------- -------- --------
NET INTEREST INCOME ................................. 1,800 1,114 3,801 3,965
PROVISION FOR LOAN LOSSES ........................... 169 -- 414 --
-------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES ........................ 1,631 1,114 3,387 3,965
-------- -------- -------- --------
OTHER INCOME (LOSS)
Gain (loss) on sale of securities held for trading 5,443 2,201 (871) 931
Unrealized loss on securities held for trading ... (3,983) (2,059) (175) (1,563)
Other ............................................ 108 64 321 210
-------- -------- -------- --------
Total other income (loss) ........................ 1,568 206 (725) (422)
-------- -------- -------- --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
OTHER EXPENSE
Salaries and employee benefits ................... 1,126 893 3,057 2,294
Premises and equipment expense ................... 315 229 889 544
FDIC insurance premiums .......................... 33 22 85 65
Marketing ........................................ 57 65 238 122
Computer services ................................ 172 63 342 161
Consulting fees .................................. 76 73 227 214
Other ............................................ 400 367 1,147 1,053
-------- -------- -------- --------
Total other expenses ............................. 2,179 1,712 5,985 4,453
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAX
PROVISION AND MINORITY INTEREST .................. 1,020 (392) (3,323) (910)
INCOME TAX PROVISION (BENEFIT) ...................... 411 (151) (1,310) (378)
-------- -------- -------- --------
NET INCOME (LOSS) BEFORE MINORITY
INTEREST ......................................... 609 (241) (2,013) (532)
MINORITY INTEREST ................................... 14 -- 14 --
-------- -------- -------- --------
NET INCOME (LOSS) ................................... $ 623 $ (241) $ (1,999) $ (532)
======== ======== ======== ========
BASIC EARNINGS (LOSS) PER SHARE ..................... $ 0.19 $ (0.07) $ (0.62) $ (0.16)
======== ======== ======== ========
DILUTED EARNINGS (LOSS) PER SHARE ................... $ 0.19 $ (0.07) $ (0.62) $ (0.16)
======== ======== ======== ========
</TABLE>
See notes to unaudited consolidated financial statements.
-2-
<PAGE>
<TABLE>
<CAPTION>
HARRINGTON FINANCIAL GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
Nine Months Ended
March 31,
------------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................................... $ (1,999) $ (532)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Provision for loan losses ........................................... 414 --
Depreciation ........................................................ 377 232
Tax benefit from exercise of non-qualified stock options ............ -- 283
Premium and discount amortization of securities, net ................ 1,858 986
Amortization of premiums and discounts on loans ..................... 242 108
Loss (gain) on sale of securities held for trading .................. 871 (931)
Unrealized loss on securities held for trading ...................... 175 1,563
Deferred income tax provision ....................................... 44 (642)
Minority interest ................................................... 966 --
Decrease in interest receivable ..................................... 127 61
Increase in interest payable ........................................ 893 751
Purchases of securities held for trading ........................... (573,000) (609,182)
Decrease in amounts due from brokers ................................ -- 11,308
Proceeds from maturities of securities held for trading ............. 41,703 21,103
Proceeds from sales of securities held for trading .................. 576,105 509,735
Increase in other assets ............................................ (1,169) (484)
Increase in accrued expenses and other liabilities .................. 1,714 4
--------- ---------
Net cash provided by (used in) operating activities ............... 49,321 (65,637)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities available for sale ........... 420 204
Change in loans receivable, net ..................................... (98,039) (41,270)
Purchases of premises and equipment ................................. (660) (1,296)
--------- ---------
Net cash used in investing activities ............................. (98,279) (42,362)
--------- ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits ............................................ 143,563 31,032
Increase (decrease) in securities sold under agreements to repurchase (104,746) 72,714
Proceeds from stock options exercised ............................... -- 1,074
Proceeds from Federal Home Loan Bank advances ....................... 83,000 55,000
Proceeds from note payable .......................................... 500 3,000
Principal repayments on Federal Home Loan Bank advances ............. (69,000) (55,000)
Purchase of treasury stock .......................................... (784) (1,071)
Proceeds from issuance of treasury stock ............................ 73 --
Dividends paid on common stock ...................................... (290) (296)
--------- ---------
Net cash provided by financing activities ......................... 52,316 106,453
--------- ---------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS ....................... 3,358 (1,546)
CASH AND CASH EQUIVALENTS
Beginning of period ................................................. 11,779 9,516
--------- ---------
CASH AND CASH EQUIVALENTS
End of period ....................................................... $ 15,137 $ 7,970
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest .............................................. $ 23,225 $ 21,829
Cash paid for income taxes .......................................... -- 321
</TABLE>
See notes to unaudited consolidated financial statements.
-3-
<PAGE>
HARRINGTON FINANCIAL GROUP, INC. AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
Note 1 - Business of the Company
-----------------------
Harrington Financial Group, Inc. (the "Company") is a thrift holding
company incorporated in 1988 to acquire and hold all of the outstanding
common stock of Harrington Bank, FSB (the "Bank"), a federally chartered
savings bank with principal offices in Richmond, Indiana and seven
full-service branch offices located in Carmel, Fishers, Noblesville and
Indianapolis, Indiana, and Mission, Kansas. The Company is a growing
community bank with a focus on the origination and management of
mortgage loans and securities. The Company also operates a commercial
loan division for business customers and owns a 51% interest in
Harrington Wealth Management Company, which provides trust, investment
management, and custody services for individuals and institutions (see
Note 2).
Earnings per Share
------------------
The following is a reconciliation of the weighted average common shares
for the basic and diluted earnings per share computations in accordance
with Statement of Accounting Standards (SFAS) No. 128:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
----------------------- -----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Basic earnings per share:
Weighted average common shares ..... 3,205,366 3,339,538 3,220,360 3,282,758
========= ========= ========= =========
Diluted earnings per share:
Weighted average common shares ..... 3,205,366 3,339,538 3,220,360 3,282,758
Dilutive effect of stock options (1) -- 6,527 -- 38,114
--------- --------- --------- ---------
Weighted average common and
incremental shares ............... 3,205,366 3,346,065 3,220,360 3,320,872
========= ========= ========= =========
</TABLE>
(1) No dilutive effect of stock options for the three and nine months
ended March 31, 1999 was used in the calculation as the effects of the
stock options were anti-dilutive.
Note 2 - Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements of the
Company have been prepared in accordance 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. However, such information reflects all adjustments
(consisting solely of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of results for
the interim periods.
<PAGE>
The results of operations for the three and nine months ended March 31,
1999 are not necessarily indicative of the results to be expected for
the year ending June 30, 1999. The unaudited consolidated financial
statements and notes thereto should be read in conjunction with the
audited financial statements and notes thereto for the year ended June
30, 1998.
-4-
<PAGE>
In February 1999, the Company formed HWM. HWM is a strategic alliance
between the Bank (51% owner) and Los Padres Bank (49% owner), a
federally chartered savings bank located in California. HWM provides
trust and investment management services for individuals and
institutions. The accompanying unaudited consolidated balance sheet as
of March 31, 1999 includes 100 percent of the assets and liabilities of
HWM and the ownership of Los Padres Bank is recorded as "Minority
interest" The results of operations for the three and nine months ended
March 31, 1999 include 100 percent of the revenues and expenses of HWM
from the date of formation and the ownership of Los Padres Bank is
recorded as "Minority interest" net of taxes.
Note 3 - Recent Accounting Pronouncements
--------------------------------
The Company adopted SFAS No. 130, Comprehensive Income, effective July
1, 1998. It requires that changes in the amounts of certain items,
including gains and losses on certain securities, be shown in the
financial statements. SFAS No. 130 does not require a specific format
for the financial statement in which comprehensive income is reported,
but does require that an amount representing total comprehensive income
be reported in that statement. All prior year financial statements have
been reclassified for comparative purposes.
The following is a summary of the Company's total comprehensive income
(loss) for the interim three and nine month periods ended March 31, 1999
and 1998 under SFAS No. 130:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income (loss) $ 623 $ (241) $(1,999) $ (532)
------- ------- ------- -------
Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding gains arising during period 4 35 23 19
------- ------- ------- -------
Other comprehensive income 4 35 23 19
------- ------- ------- -------
COMPREHENSIVE INCOME (LOSS) ....................... $ 627 $ (206) $(1,976) $ (513)
======= ======= ======= =======
</TABLE>
<PAGE>
In June 1997, SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information, was issued. This Statement will change the way
public companies report information about segments of their business in
their annual financial statements and requires them to report selected
segment information in their quarterly reports issued to shareholders.
It also requires entity-wide disclosures about the products and services
an entity provides, the material countries in which it holds assets and
reports revenues, and its major customers. SFAS No. 131 is effective for
fiscal years beginning after December 15, 1997. The Company will include
the appropriate segment information beginning in the annual financial
statements for the year ending June 30, 1999, and all quarterly reports
thereafter. Management has not yet determined the effect, if any, of
SFAS No. 131 on the consolidated financial statements.
-5-
<PAGE>
SFAS No. 133, Accounting for Derivative and Similar Financial
Instruments and for Hedging Activities, was issued in June 1998 and is
effective for all fiscal quarters of all fiscal years beginning after
June 15, 1999. This statement establishes accounting and reporting
standards for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of
financial condition and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated
as a fair value hedge, a cash flow hedge, or a hedge of foreign currency
exposure. The accounting for changes in the fair value of a derivative
(that is, gains and losses) depends on the intended use of the
derivative and the resulting designation. Management has not yet
quantified the effect of the new standard on the consolidated financial
statements.
-6-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
At March 31, 1999, the Company's total assets amounted to $538.3
million, as compared to $484.4 million at June 30, 1998. The $53.9 million or
11.1% increase in total assets during the nine months ended March 31, 1999 was
primarily the result of a $97.4 million increase in net loans receivable which
was partially offset by a $47.7 million decrease in securities held for trading.
The increase in net loans receivable reflected the Company's continuing efforts
to increase its retail banking operations, particularly the origination (both
directly and through correspondent mortgage banking companies) of single-family
residential loans and business loans through its commercial division. Securities
held for trading were reduced in accordance with the loan growth. The increase
in the Company's assets from June 30, 1998 to March 31, 1999 was funded by a
$143.6 million or 80.5% increase in deposits and a $14.0 million or 53.8%
increase in Federal Home Loan Bank advances which were partially offset by a
$104.7 million or 43.6% decrease in securities sold under agreements to
repurchase.
Minority interest increased $966,000 due to the formation of Harrington
Wealth Management (HWM). The financial statements as of and for the three and
nine month periods ended March 31, 1999 include all of the assets, liabilities,
and results of operations for HWM. The minority interest represents the portion
of the assets, liabilities, and results of operations attributable to the
ownership interest of Los Padres Bank.
At March 31, 1999, the Company's stockholders' equity amounted to $19.7
million, as compared to $22.7 million at June 30, 1998. The 13.2% decrease in
stockholders' equity was primarily due to the $2.0 million of net loss
recognized during the nine month period, the quarterly $0.03 per share payments
of cash dividends totaling $290,000, and the repurchase of stock for $784,000
which were partially offset by $73,000 from treasury stock purchased by the
Company's employee stock ownership plan. At March 31, 1999, the Bank's Tier 1
core capital amounted to $32.9 million or 6.14% of adjusted total assets, which
exceeded the minimum 4.0% requirement by $11.5 million. Additionally, as of such
date, the Bank's risk-based capital totaled $33.7 million or 12.44% of total
risk-adjusted assets, which exceeded the minimum 8.0% requirement by $12.0
million.
Results of Operations
General. The Company reported earnings of $623,000 or $0.19 per share
and losses of $2.0 million or $0.62 per share during the three and nine months
ended March 31, 1999, as compared to losses of $241,000 or $0.07 per share and
$532,000 or $0.16 per share during the prior comparable periods. The $864,000
increase in earnings during the three months ended March 31, 1999, as compared
to the same period in the prior year, was primarily due to a $1.3 million
increase in realized and unrealized net gains on securities held for trading and
a $686,000 increase in net interest income which were partially offset by a
$562,000 increase in the Company's income tax provision, a $467,000 increase in
operating expenses and a $169,000 increase in the provision for loan losses. The
$1.5 million decrease in earnings during the nine months ended March 31, 1999,
as compared to the same period in the prior year, was primarily due to a $1.5
million increase in operating expenses, a $414,000 decrease in realized and
unrealized net gains on securities held for trading, and a $414,000 increase in
the provision for
-7-
<PAGE>
loan losses which were partially offset by a $932,000 decrease in the Company's
income tax provision.
Selected Financial Ratios. The following schedule shows selected
financial ratios for the three and nine months ended March 31, 1999 and 1998.
<TABLE>
<CAPTION>
At or for the Three At or for the Nine
Months Ended Months Ended
March 31, March 31,
------------------------- -----------------------
1999 1998 1999 1998
------- ------- ------- ------
<S> <C> <C> <C> <C>
Return on average assets 0.45% (0.17)% (0.47)% (0.13)
Return on average equity 12.73 (3.88) (13.43) (2.86)
Interest rate spread (1) 1.29 0.69 0.88 0.88
Net interest margin (2) 1.34 0.82 0.92 1.04
Operating expenses to average assets 1.57 1.23 1.40 1.12
Efficiency ratio (3) 125.37 145.33 161.36 106.66
Non-performing assets to total assets 0.14 0.16 0.14 0.16
Loan loss reserves to non-performing loans 366.82 70.53 366.82 70.53
</TABLE>
- -----------------
(1) Interest rate spread is the difference between interest income as a
percentage of interest-earning assets and interest expense as a percentage of
interest-bearing liabilities.
(2) Net interest margin is net interest income divided by average
interest-earning assets.
(3) The efficiency ratio is total other expense as a percentage of the net
interest income after provision for loan losses plus other income, excluding
gains and losses on securities held for trading.
Interest Income. Interest income increased by $174,000 or 2.0% during
the three months ended March 31, 1999, as compared to the same period in the
prior year. This increase was primarily due to a $2.2 million increase in
interest income from the loan portfolio and a $461,000 decrease in net interest
expense on interest rate contracts maintained in the trading portfolio offset by
a $2.5 million decrease in interest from securities held for trading. The
increase in interest income on the loan portfolio was a direct result of the
$126.4 million increase in the level of the average loan portfolio which was
offset by a $140.0 million decrease in the level of the average securities held
for trading portfolio.
-8-
<PAGE>
Interest income increased by $1.4 million or 5.5% during the nine months
ended March 31, 1999, as compared to the same period in the prior year. This
increase was primarily due to a $5.3 million increase in interest income from
the loan portfolio and a $437,000 decrease on net interest expense on interest
rate contracts maintained in the trading portfolio which were partially offset
by a $4.1 million decrease in interest income from the Company's investment
portfolio and a $252,000 decrease in interest income from deposits. The increase
in interest income on the loan portfolio was a direct result of the $104.1
million increase in the level of the average loan portfolio which was partially
offset by a 34 basis point decline in the interest yield earned. The decrease in
interest income from the Company's investment portfolio was a result of a $61.6
million decrease in the level of the average investment portfolio partially
offset by a 25 basis point increase in the interest yield earned. The decrease
in interest income from deposits was a result of a $4.0 million decrease in the
level of the average interest-bearing deposits and an 89 basis point decline in
the interest yield earned.
Interest Expense. Interest expense decreased by $512,000 during the
three months ended March 31, 1999, as compared to the same period in the prior
year. This decrease was primarily due to a 39 basis point decrease in the cost
of interest-bearing liabilities resulting from an overall decrease in the
wholesale and retail funding costs.
Interest expense increased by $1.6 million during the nine months ended
March 31, 1999, as compared to the same period in the prior year. This increase
was primarily due to a $41.5 million increase in the level of average
interest-bearing liabilities.
Net Interest Income. Net interest income increased by $686,000 or 61.6%
during the three months ended March 31, 1999, as compared to the same period in
the prior year. Net interest income decreased by $164,000 or 4.1% during the
nine months ended March 31, 1999, as compared to the same period in the prior
year.
Provision for Loan Losses. During the three and nine months ended March
31, 1999, the Company increased the general allowance for loan losses by
$169,000 and $414,000, respectively, in response to the substantial loan growth.
Delinquencies and loan write-offs continue to be minimal, and the non-performing
assets remain stable. No additional provision for loan losses was made during
the three and nine months ended March 31, 1998.
Other Income (Loss). Total other income (loss) amounted to $1.6 million
and ($725,000) during the three and nine months ended March 31, 1999, as
compared to $206,000 and ($422,000) during the respective periods in the prior
year. This income (loss) principally represents the net market value gain or
loss (realized or unrealized) on securities held for trading, offset by the net
market value gain or loss (realized or unrealized) on interest rate contracts
used for hedging such securities. Management's goal is to attempt to offset any
change in the market value of its securities portfolio with the change in the
market value of the interest rate risk management contracts and mortgage-backed
derivative securities utilized by the Company to hedge its interest rate
exposure. In addition, management attempts to produce a positive hedged excess
return (i.e. total return, which includes interest income plus realized and
unrealized net gains/losses on investments minus the one month LIBOR funding
cost for the period) on the investment portfolio using option-adjusted pricing
analysis.
During the three months ended March 31, 1999, the Company recognized
$5.4 million of realized gains on the sale of securities and hedges held for
trading which were partially offset by
-9-
<PAGE>
$4.0 million of unrealized losses on securities and hedges held for trading.
During the nine months ended March 31, 1999, the Company recognized $871,000 of
realized losses on the sale of securities and hedges held for trading and
$175,000 of unrealized losses on securities and hedges held for trading. Losses
on hedge contracts during the six months ended December 31, 1998 substantially
exceeded gains on mortgage investments, as the spreads between comparable
duration U.S. Treasury and mortgage rates increased to the highest level in many
years. The primary reasons for the underperformance of mortgages were (1) fears
of an unprecedented wave of mortgage refinancings and (2) dramatically increased
volatility in many financial markets (stocks, corporate bonds, and emerging
markets). This volatility caused a flight to quality that increased risk
premiums and widened spreads to comparable Treasury securities in all of these
markets, including mortgage securities. During the latter part of the nine
months ended March 31, 1999, the spreads on mortgage securities narrowed as
markets stabilized. The Company also executed trades between adjustable and
fixed rate securities on a hedged basis. These events resulted in hedge gains
exceeding the losses on the mortgage investments as rates rose and in a
significant improvement in performance.
During the three and nine months ended March 31, 1998, the Company
recognized $2.2 million and $931,000 of realized gains on the sale of securities
and hedge contracts held for trading which were offset by $2.1 million and $1.6
million of unrealized losses on securities held for trading.
Other Expense. Total other expense amounted to $2.2 million and $6.0
million during the three and nine months ended March 31, 1999, as compared to
$1.7 million and $4.5 million during the respective periods in the prior year.
The increase in total other expense was due to increases in salaries, premises
and equipment expense, and other operating expenses, which were primarily the
result of the Company's retail growth (including the opening of four new branch
offices in the Indianapolis, Indiana area). Furthermore, the Company added a new
commercial loan division and an additional branch in Mission, Kansas, which
opened in August of 1998. In the March 1999 quarter, expenses also reflected a
portion of the training and start-up expenses for the FISERV VISION operating
system conversion and other Year 2000 compliance expenses.
Income Tax Provision (Benefit). The Company recorded an income tax
provision of $411,000 during the three months ended March 31, 1999 as compared
to an income tax benefit of $151,000 during the respective period in the prior
year. For the nine months ended March 31, 1999 and 1998, the Company recorded
income tax benefits of $1.3 million and $378,000, respectively.
Liquidity and Capital Resources
The Bank is required under applicable federal regulations to maintain
specified levels of "liquid" investments as defined by the Office of Thrift
Supervision ("OTS"). As of November 24, 1997, the required level of such liquid
investments was changed from 5% to 4% of certain liabilities as defined by the
OTS. In addition to the change in the percentage of required level of liquid
assets, the OTS also modified its definition of investments that are considered
liquid. As a result of this change, the level of assets eligible for regulatory
liquidity calculations increased considerably.
-10-
<PAGE>
The total eligible regulatory liquidity of the Bank was 13.3% at March
31, 1999, as compared to 15.6% and 5.3% at June 30, 1998 and 1997, respectively.
At March 31, 1999, the Bank's average "liquid" assets totaled approximately
$74.7 million, which was $52.2 million in excess of the current OTS minimum
requirement.
At March 31, 1999, the Company's total approved originated loan
commitments outstanding amounted to $5.1 million, and the unused lines of credit
outstanding totaled $10.1 million. At the same date, commitments outstanding to
purchase investment securities and loans were $70.0 million and $2.0 million,
respectively. Also at March 31, 1999, the Company had commitments to sell
investment securities totaling $10.0 million. Certificates of deposit scheduled
to mature in one year or less at March 31, 1999 totaled $138.5 million. The
Company believes that it has adequate resources to fund ongoing commitments such
as investment security and loan purchases as well as deposit account withdrawals
and loan commitments.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995
In addition to historical information, forward-looking statements are
contained herein that are subject to risks and uncertainties that could cause
actual results to differ materially from those reflected in the forward-looking
statements. Factors that could cause future results to vary from current
expectations, include, but are not limited to, the impact of economic conditions
(both generally and more specifically in the markets in which the Company
operates), the impact of competition for the Company's customers from other
providers of financial services, the impact of government legislation and
regulation (which changes from time to time and over which the Company has no
control), and other risks detailed in this Form 10-Q and in the Company's other
Securities and Exchange Commission (SEC) filings. Readers are cautioned not to
place undue reliance on these forward-looking statements, which reflect
management's analysis only as of the date hereof. The Company undertakes no
obligation to publicly revise these forward-looking statements, to reflect
events or circumstances that arise after the date hereof. Readers should
carefully review the risk factors described in other documents the Company files
from time to time with the SEC.
Year 2000 Disclosure
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. The Company's
computer programs and those of third-party computer related providers may
recognize a date using "00" as the year 1900 rather than the year 2000. This
situation could result in system failures or miscalculations causing disruption
of operations that could affect the ability of the Company to operate
effectively and service customers.
-11-
<PAGE>
I. THE COMPANY'S STATE OF READINESS
The Company is preparing for the year 2000 by testing and evaluating
both its information technology (IT) and non-information technology systems. The
Company does not have any mission critical processes that are dependent on
non-IT systems. The non-IT systems, such as the telephone system, are either
currently compliant or are expected to be compliant in fiscal year 1999. The IT
systems used by the Company have been or are being tested. The components of the
IT systems being examined are: 1) personal computers (PCs), hardware and
software, 2) data service bureau, and 3) other service providers.
Hardware and software on all PCs have been inventoried and tested. The
limited number of PCs and software that were not year 2000 compliant were
replaced in the first quarter of calendar year 1999.
The Company has converted its data service provider to the Vision
platform supplied by FISERV. The conversion was accomplished in April of 1999.
FISERV has provided the Company with assurances that the Vision product is Year
2000 compliant. One hundred sixty (160) FISERV clients have already tested the
Vision platform and did not find any material Year 2000 problems. The Company
will be conducting tests in May 1999 on the Vision software system to confirm
this compliance.
Other service providers, such as the Company's financial advisors or
the FHLB of Indianapolis, are either Year 2000 compliant or are keeping the
Company apprised of their progress towards being Year 2000 compliant. As part of
its Year 2000 compliance program, the Company will be monitoring the vendors'
progress toward compliance and, if necessary, testing systems to help ensure
compliance.
II. THE COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES
The limited number of PCs and software that were not Year 2000
compliant were replaced in the first quarter of calendar year 1999. The cost of
replacing these machines and software was approximately $43,500 in capitalized
fixed assets in fiscal year 1999.
III. THE RISKS OF THE COMPANY'S YEAR 2000 ISSUES
The Company has established parameters and processes for management to
identify material customers, evaluate their preparedness, assess their credit
risk and implement controls to manage the risk arising from their failure to
properly address Year 2000 technology issues. The Company faces increased
credit, liquidity, or counterparty trading risk when customers encounter Year
2000-related problems. Customers that must be evaluated and monitored are those
that, if adversely impacted by Year 2000 technology issues, represent a
significant financial exposure to the Company in terms of either credit loss or
liquidity. The organizations that have been identified as material customers of
the Company will be monitored because of their reliance on technology for their
successful business operations.
Failure of borrowers, counterparties or servicers to address Year 2000
problems may increase credit risk to the Company through the inability of these
parties to meet the terms of
-12-
<PAGE>
their contracts and make timely payments of principal and interest to the
Company. Liquidity risk may result if depositors, lenders or counterparties
experience Year 2000-related business disruption or operational failures and are
unable to provide funds or fulfill funding commitments to the Company. Capital
market counterparties, such as trading counterparties or interest rate swap or
interest rate cap/floor counterparties, provide contracts that allow the Company
to enter into forward commitments to purchase or sell securities or to use
hedges to reduce interest rate risk. Liquidity and credit risk may result if
capital market counterparties are unable to fulfill contractual commitments due
to operational problems caused by the Year 2000 date change.
In those cases where the Company is not fully satisfied that its
counterparties will be Year 2000 ready, mitigating controls will be established
such as early termination agreements, additional collateral, netting
arrangements, and third-party payment arrangements or guarantees. In cases where
the Company has a high degree of uncertainty regarding a counterparty's ability
to address its Year 2000 problems, the Company will avoid all transactions with
that counterparty that mature on or after January 1, 2000 with liquidity,
credit, or settlement risk. The Company will not resume normal transaction
activities until the counterparty has demonstrated that it is prepared for the
Year 2000.
IV. THE COMPANY'S CONTINGENCY PLAN
DATA SERVICE BUREAU
- -------------------
In the event the data service bureau used by the Bank fails to operate
satisfactorily after the turn of the century, the Bank would be forced to
operate on a manual system until a conversion could be made to a different
service bureau or the existing service bureau corrects its problems. The Bank
would establish ledger cards for each customer account and would manually post
transactions to the cards each day. Transactions would also be batched and
manually posted to the general ledger. The ledger cards would be balanced to the
general ledger frequently to provide some assurance that the manual system is
functioning accurately.
The Bank would have to make some temporary changes in its product menu
during the time it was operating on a manual system. For instance, the Bank
would probably discontinue originating mortgage loans because of the
complexities involved with them. The Bank would also stop opening new checking
accounts. The Bank might have to convert its existing checking accounts to
savings accounts (with appropriate advance notice and disclosures to the
customers) so that the Bank could more efficiently process these accounts. The
Bank would also have to put a temporary moratorium on ATM transactions because
the Bank would be effectively running in an off-line mode.
Undoubtedly, the Bank would experience significant deposit run-off were
the Bank to function in such a limited capacity for any length of time. However,
the Bank has a substantial mortgage-backed security portfolio which provides
ready liquidity should the need arise to liquidate deposits.
-13-
<PAGE>
INVESTMENT SECURITIES
- ---------------------
The Company has received assurances that the major brokers with which
it trades are Year 2000 compliant. Some of the smaller regional brokers have yet
to provide these assurances. Beginning in November 1999, the Company will no
longer enter into any transactions with regional brokers that are not Year 2000
compliant. In this way, the Company will control its exposure to Year 2000 risks
with these brokers. After the turn of the millennium, the Company will carefully
evaluate regional brokers individually before resuming business with them.
Most of the Company's securities are in safekeeping at the FHLB of
Indianapolis, which is progressing towards being year 2000 compliant. If the
FHLB is not Year 2000 compliant in 1999, the Company will engage a new
safekeeping agent that is compliant. Similarly, if any assets are pledged with
brokers, the Company will verify well before the end of 1999 that those brokers
are already Year 2000 compliant and if not, these assets will be pledged only
with Year 2000 compliant brokers.
PERSONAL COMPUTERS
- ------------------
By the end of the first quarter of calendar year 1999, the Company had
replaced or upgraded all of its personal computers that failed Year 2000
compliance tests. Thus, it is expected that the Company's PCs will be in
compliance when the century turns. The Company has previously tested the
software used on its PCs, and those software packages that did not properly
handle the Year 2000 have been replaced.
OTHER VENDORS AND SERVICE PROVIDERS
- -----------------------------------
The Company is closely monitoring all of its other vendors and service
providers to determine if they will be Year 2000 compliant on a timely basis. If
any vendors or service providers have not yet become Year 2000 compliant by the
end of the second quarter of calendar year 1999, the Bank will immediately find
a replacement vendor or service provider who is compliant. It is possible,
although unlikely, that increased cost to the institution could result from
engaging replacement vendors.
GENERAL
- -------
The costs of the project and the date on which the Company plans to
complete the Year 2000 compliance program are based on management's best
estimates which were derived utilizing numerous assumptions of future events
including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved, and actual results could differ materially
from these estimates.
-14-
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The OTS requires each thrift institution to calculate the estimated
change in the institution's market value of portfolio equity (MVPE) assuming an
instantaneous, parallel shift in the Treasury yield curve of 100 to 300 basis
points either up or down in 100 basis point increments. MVPE is defined as the
net present value of an institution's existing assets, liabilities and
off-balance sheet instruments. The OTS permits institutions to perform this MVPE
analysis using their own internal model based upon reasonable assumptions. The
Company has contracted with Smith Breeden Associates, Inc. for the provision of
consulting services regarding, among other things, the management of its
investments and borrowings, the pricing of loans and deposits, the use of
various financial instruments to reduce interest rate risk and assistance in
performing the required calculation of the sensitivity of its market value to
changes in interest rates. In estimating the market value of mortgage loans and
mortgage-backed securities, the Company utilizes various prepayment assumptions
which vary, in accordance with historical experience, based upon the term,
interest rate and other factors with respect to the underlying loans.
The following table sets forth at March 31, 1999, the estimated
sensitivity of the Bank's MVPE to parallel yield curve shifts using the
Company's internal market value calculation. This analysis incorporates an
option adjusted cashflow discount model for all financial assets and liabilities
other than fixed rate mortgages, loans, and securities. For these loans and
securities, the Company evaluates the market value changes using time varying
empirical (TVE) elasticity analysis. This analysis measures the market value
changes of the mortgage investment based on historical price relationships to
changes in Treasury rates and other variables. Management believes this
empirical based analysis is a valuable and more accurate tool in estimating the
level of net market value changes of the mortgage related investment and loan
portfolios with fixed rates and will be expanding it to other mortgage
instruments in the future.
The Company actively manages the interest rate risk of the balance sheet and
investment portfolio by dynamically rebalancing the hedges on a frequent basis.
This rebalancing is undertaken to further reduce the interest rate risk for
large rate changes. Since the following analysis is based on instantaneous
changes in rates, the benefits of the dynamic rebalancing process on interest
rate risk reduction are, therefore, not reflected in this analysis.
-15-
<PAGE>
The table set forth below does not purport to show the impact of
interest rate changes on the Company's equity under generally accepted
accounting principles. Market value changes only impact the Company's income
statement or the balance sheet (1) to the extent the affected instruments are
marked to market and (2) over the life of the instruments as an impact on
recorded yields.
<TABLE>
<CAPTION>
Change in Interest Rates
(In Basis Points)(1)
(Dollars in Thousands) -300 -200 -100 - +100 +200 +300
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Market value gain (loss) of assets $16,333 $19,158 $ 13,198 --- $(19,129) $(42,891) $(69,959)
Market value gain (loss) of liabilities (4,909) (3,618) (2,019) --- 2,506 5,530 9,059
------- ------- -------- ----- -------- -------- --------
Market value gain (loss) of net
assets before interest rate contracts 11,424 15,540 11,179 --- (16,623) (37,361) (60,900)
Market value gain (loss) of interest
rate contracts (28,430) (20,225) (11,049) --- 13,577 29,546 46,972
------- ------- -------- ----- -------- -------- --------
Total change in MVPE (2) (Model) $17,006 $ 4,685 $ 130 $ --- $( 3,046) $ (7,815) $(13,928)
======= ======= ======== ====== ======== ======== ========
Change in MVPE as a percent of:
MVPE (2) (Model) (50.9)% (14.0)% 0.4% --- (9.1)% (23.4)% (41.7)%
Total assets of the Bank (3.2)% (0.9)% 0.0% --- (0.6)% (1.5)% (2.6)%
</TABLE>
(1) Assumes an instantaneous parallel change in interest rates at all
maturities.
(2) Based on the Bank's pre-tax MVPE of $33.4 million at March 31, 1999.
Since a large portion of the Company's assets is recorded at market
value, the following table is included to show the estimated impact on the
Company's equity of instantaneous, parallel shifts in the yield curve, using the
methodology described above. The assets and interest rate contracts included in
the table below are only those which are either classified by the Company as
held for trading or available for sale and, therefore, reflected at market
value. Consequently, the Company's liabilities, which are reflected at cost, are
not included in the table below. All amounts are shown net of taxes, with an
estimated effective tax rate of 39.0%.
<PAGE>
<TABLE>
<CAPTION>
Change in Interest Rates
(In Basis Points)
(Dollars in Thousands) -300 -200 -100 - +100 +200 +300
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
After tax market value gain (loss)
of assets $ 5,577 $ 6,151 $ 4,151 --- $ (5,977) $(13,467) $(22,083)
After tax market value gain (loss)
of interest rate contracts (10,605) (7,668) (4,283) --- 5,518 12,198 19,670
-------- -------- ------- ----- -------- -------- --------
After tax gain (loss) in equity (Model) $ (5,028) $ (1,517) $ (132) ---- $ (459) $ (1,269) $ (2,413)
======== ======== ======= ===== ======== ======== ========
After tax gain (loss) in equity as a
percent of the Company's equity at
March 31, 1999 (25.5)% (7.7)% (0.7)% --- (2.3)% (6.4)% (12.3)%
</TABLE>
-16-
<PAGE>
HARRINGTON FINANCIAL GROUP, INC. AND SUBSIDIARY
Part II
Item 1. Legal Proceedings
-----------------
Neither the Company nor the Bank is involved in any pending legal
proceedings other than non-material legal proceedings occurring
in the ordinary course of business.
Item 2. Changes in Securities
---------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security-Holders
---------------------------------------------------
None
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibit 3.1: Amended and Restated Articles of
Incorporation of Harrington Financial Group, Inc. This
exhibit is incorporated herein by reference from the
Registration Statement on Form S-1 (Registration No.
333-1556) filed by the Company with the SEC on February
20, 1996, as amended.
b) Exhibit 3.2: Amended and Restated Bylaws of Harrington
Financial Group, Inc. This exhibit is incorporated herein
by reference from the Registration Statement on Form S-1
(Registration No. 333-1556) filed by the Company with the
SEC on February 20, 1996, as amended.
c) Exhibit 10.7: Terms of Employment between Harrington
Bank, FSB and Lawrence T. Loeser dated January 25, 1999
d) Exhibit 27: Financial Data Schedule
e) No Form 8-K reports were filed during the quarter.
-17-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HARRINGTON FINANCIAL GROUP, INC.
Date: May 14, 1999 By: /s/ Craig J. Cerny
------------------
Craig J. Cerny
President
Date: May 14, 1999 By: /s/ Twana L. Cheek
------------------
Twana L. Cheek
Principal Financial & Accounting Officer
January 25, 1999
Mr. Lawrence T. Loeser
960 Coventry Drive
Lake Forest, IL 60045
Dear Larry:
We are extremely pleased and excited about your joining
Harrington's senior management team to lead the development and
ongoing management of the North Carolina Bank. In this letter, I
have provided the terms of our offer to you as we have discussed
over the last week.
Position: President of Harrington Bank of North Carolina reporting
to the Chief Executive Officer of Harrington Bank. Also, upon your
election by the Board of Directors of Harrington Bank, you will
become a director of Harrington Bank. This election will take
place at the first board meeting held after your start date of
employment.
Base Compensation: $150,000 per annum. This salary will be paid
over 26 bi-weekly pay periods from the start of employment.
Stock Options: 5,000 Options on HFGI Stock struck at $10 per
share. These options will have a 10 year term and will vest at a
rate of 20% per year from the date of grant, expected on
Harrington Financial Group, Inc.'s first Board or Executive
Committee Meeting held after your start date of employment. We
will embody these terms in a stock option agreement between us.
Bonus: A guaranteed first year bonus of $50,000, paid after 12
months of employment with the Bank. A partial amount of this bonus
may be paid at the Bank's discretion on an earlier date in
accordance with the Bank's regular annual compensation reviews for
senior management, normally conducted in month of December.
<PAGE>
Mr. Lawrence T. Loeser
Page 2
January 25, 1999
Employment Understanding: In the event that Harrington terminates your
employment for reasons other than your willful misconduct or gross negligence
(or in the event you are reassigned to a position of lesser responsibility and
you decide to terminate your employment) within the first eighteen months of
your employment, Harrington Bank agrees to continue to pay your base salary (at
a rate of $411.33 per calendar day) until eighteen months have passed from your
initial date of employment with Harrington.
Any tax due by you on income related to this compensation will be borne by you.
This Employment Understanding agreement will expire eighteen months after the
date on which your employment with Harrington begins.
Benefits: Standard Harrington Bank Employee benefits available to a senior
manager (Vice President or above).
House Hunting: Harrington Bank will pay the reasonable expenses for a maximum of
three trips to North Carolina for house hunting purposes, with one of those
trips including all family members. Any tax due by you on income related to
these trips will be borne by you.
Interim Living Expenses: Harrington Bank will pay for interim lodging, meal, and
reasonable commuting expenses acceptable to the Bank from the start date of your
employment until your children's last day of school for the 1999 school year or
June 30, 1999, whichever is earlier. The tax due by you on any income related to
interim living will be borne by you.
Moving Expenses: Harrington Bank will pay for reasonable expenses to move your
household possessions and travel to North Carolina not to exceed $15,000 in
total. Any personal income tax related to reimbursement for this move will be
borne by you.
Commission on the Sale of Your Home in Illinois: Harrington will reimburse you
for the commission cost on the sale of your home not to exceed 5.25% of the
sales price, as evidenced by a broker statement and this commission will be
grossed up by your actual total tax rate not to exceed 35%. If you terminate
your employment with Harrington Bank within 18 months from your start date, you
will be responsible for reimbursing Harrington Bank for a portion of this
commission plus the gross-up amount for taxes. The amount owed Harrington Bank
will be calculated by taking the total amount of the commission plus gross-up
divided by 547 days. The resulting amount will be multiplied by the difference
between 547 and the number of calendar days from start of employment to
resignation.
<PAGE>
Mr. Lawrence T. Loeser
Page 3
January 25, 1999
Country Club Dues: Harrington Bank will pay up to $200 per month for regular
dues for a country club or social club membership, while you are a senior
management employee of Harrington.
In order to reimburse these expenses, we will require documentation of the
charges including invoices and receipts.
I trust that this letter includes all the terms of the offer as we have
discussed and agreed. If so, please sign in the space provided below so that we
may have this record for your employee file. I look forward to your start date
anticipated in late February 1999 or early March 1999 and to working with you in
accomplishing the Bank's strategic goals.
Sincerely,
/s/ Craig J. Cerny
- ------------------
Craig J. Cerny
CJC/dld
cc: HB/HFG Compensation Committee
- --------------------------------------------------------------------------------
Harrington Bank is not bound by any contractual agreement, expressed or implied,
by enforcing the provisions of this document. Harrington Bank is an at will
employer.
I accept the terms and conditions stated herein regarding my employment with
Harrington Bank.
/s/ Lawrence T. Loeser 1/25/99
- ---------------------- -------
Lawrence T. Loeser Date
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,328
<INT-BEARING-DEPOSITS> 13,809
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 242,897
<INVESTMENTS-HELD-FOR-SALE> 525
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 260,929
<ALLOWANCE> (774)
<TOTAL-ASSETS> 538,311
<DEPOSITS> 321,874
<SHORT-TERM> 175,650
<LIABILITIES-OTHER> 6,138
<LONG-TERM> 13,995
0
0
<COMMON> 425
<OTHER-SE> 19,263
<TOTAL-LIABILITIES-AND-EQUITY> 538,311
<INTEREST-LOAN> 11,316
<INTEREST-INVEST> 15,088
<INTEREST-OTHER> (131)
<INTEREST-TOTAL> 26,535
<INTEREST-DEPOSIT> 10,031
<INTEREST-EXPENSE> 22,734
<INTEREST-INCOME-NET> 3,801
<LOAN-LOSSES> 414
<SECURITIES-GAINS> (1,046)
<EXPENSE-OTHER> 5,664
<INCOME-PRETAX> (3,323)
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,999)
<EPS-PRIMARY> (0.62)
<EPS-DILUTED> (0.62)
<YIELD-ACTUAL> 0.88
<LOANS-NON> 211
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> (360)
<CHARGE-OFFS> (414)
<RECOVERIES> 0
<ALLOWANCE-CLOSE> (774)
<ALLOWANCE-DOMESTIC> (774)
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
