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, 2000
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 incorporation or (I.R.S. Employer
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 9, 2000,
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
Part I. Financial Information Page
- ------- --------------------- ----
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2000
(unaudited) and June 30, 1999 1
Consolidated Statements of Operations (unaudited) for the three
and nine months ended March 31, 2000 and 1999 2
Consolidated Statements of Cash Flows (unaudited) for the nine
months ended March 31, 2000 and 1999 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,
2000 1999
--------- ---------
<S> <C> <C>
ASSETS
Cash $ 2,025 $ 1,414
Interest-bearing deposits 16,408 8,087
--------- ---------
Total cash and cash equivalents 18,433 9,501
Securities held for trading - at fair value
(amortized cost of $61,142 and $188,130) 59,804 183,200
Securities available for sale - at fair value
(amortized cost of $60,269 and $461) 60,343 502
Securities held to maturity - at amortized cost 4,020 44
Loans receivable, net 282,650 259,631
Interest receivable, net 2,032 2,340
Premises and equipment, net 6,007 6,499
Federal Home Loan Bank of Indianapolis stock 4,879 4,878
Other 5,487 4,744
--------- ---------
Total assets $ 443,655 $ 471,339
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 368,096 $ 333,245
Securities sold under agreements to repurchase 16,663 60,198
Federal Home Loan Bank advances -- 40,000
Interest payable on securities sold under agreements to
repurchase 3 66
Other interest payable 2,564 1,925
Note payable 14,995 13,995
Due to brokers 21,412 --
Advance payments by borrowers for taxes and insurance 1,332 795
Accrued expenses payable and other liabilities 801 1,039
--------- ---------
Total liabilities 425,866 451,263
--------- ---------
Minority interest 864 937
--------- ---------
Common stock 425 425
Additional paid-in-capital 16,946 16,946
Treasury stock, 194,556 shares at cost (2,162) (2,162)
Retained earnings 1,671 3,905
Accumulated other comprehensive income, net of taxes 45 25
--------- ---------
Total stockholders' equity 16,925 19,139
--------- ---------
Total liabilities and stockholders' equity $ 443,655 $ 471,339
========= =========
</TABLE>
See notes to unaudited consolidated financial statements.
1
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<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,
--------------------- ---------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME
Securities held for trading $ 1,657 $ 4,096 $ 7,947 $ 15,033
Securities available for sale 73 16 109 55
Securities held to maturity 60 4 97 14
Loans receivable 5,313 4,408 15,076 11,302
Dividends on Federal Home Loan Bank stock 97 96 294 293
Deposits 260 166 633 444
Net interest expense on interest rate
contracts maintained in the trading portfolio (16) (53) (72) (606)
-------- -------- -------- --------
Interest income 7,444 8,733 24,084 26,535
-------- -------- -------- --------
INTEREST EXPENSE
Deposits 4,753 3,809 13,417 10,031
Federal Home Loan Bank advances -- 706 1,106 1,860
Short-term borrowings 304 2,153 2,318 10,009
Long-term borrowings 330 266 944 834
-------- -------- -------- --------
Interest expense 5,387 6,934 17,785 22,734
-------- -------- -------- --------
NET INTEREST INCOME 2,057 1,799 6,299 3,801
PROVISION FOR LOAN LOSSES 164 169 478 414
-------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,893 1,630 5,821 3,387
-------- -------- -------- --------
OTHER INCOME (LOSS)
Gain (loss) on sale of securities held for trading (3,843) 5,443 (5,852) (871)
Unrealized gain (loss) on securities held for
trading 3,232 (3,983) 3,592 (175)
Other 209 108 546 321
-------- -------- -------- --------
Total other income (loss) (402) 1,568 (1,714) (725)
-------- -------- -------- --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
OTHER EXPENSE
Salaries and employee benefits 1,294 1,239 3,993 3,492
Premises and equipment expense 387 311 1,169 883
FDIC insurance premiums 18 33 115 85
Marketing 88 57 307 238
Computer services 153 172 455 342
Consulting fees 67 76 210 227
Other 389 291 1,171 718
-------- -------- -------- --------
Total other expenses 2,396 2,179 7,420 5,985
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAX
PROVISION AND MINORITY INTEREST (905) 1,019 (3,313) (3,323)
INCOME TAX PROVISION (BENEFIT) (356) 411 (1,296) (1,310)
-------- -------- -------- --------
NET INCOME (LOSS) BEFORE MINORITY
INTEREST (549) 608 (2,017) (2,013)
MINORITY INTEREST 23 14 72 14
-------- -------- -------- --------
NET INCOME (LOSS) $ (526) $ 622 $ (1,945) $ (1,999)
======== ======== ======== ========
BASIC EARNINGS (LOSS) PER SHARE $ (0.16) $ 0.19 $ (0.61) $ (0.62)
======== ======== ======== ========
DILUTED EARNINGS (LOSS) PER SHARE $ (0.16) $ 0.19 $ (0.61) $ (0.62)
======== ======== ======== ========
</TABLE>
See notes to unaudited consolidated financial statements.
2
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<TABLE>
<CAPTION>
HARRINGTON FINANCIAL GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
Nine Months Ended
March 31,
-----------------------
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,945) $ (1,999)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Provision for loan losses 478 414
Depreciation 579 377
Premium and discount amortization of securities, net 1,170 1,858
Loss on sale of securities held for trading 5,852 871
Loss on disposal of fixed assets 8 --
Unrealized loss (gain) on securities held for trading (3,592) 175
Effect of minority interest (72) (14)
Purchases of securities held for trading (319,293) (573,000)
Increase in amounts due to brokers 21,412 --
Proceeds from maturities of securities held for trading 10,065 41,703
Proceeds from sales of securities held for trading 429,194 576,105
Net increase in other assets and liabilities 440 1,851
--------- ---------
Net cash provided by operating activities 144,296 48,341
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities held to maturity (4,011) --
Purchases of securities available for sale (59,991) --
Proceeds from maturities of securities held to maturity 35 --
Proceeds from maturities of securities available for sale 167 420
Increase in loans receivable, net (23,497) (98,039)
Minority interest -- 980
Purchases of premises and equipment (95) (660)
--------- ---------
Net cash used in investing activities (87,392) (97,299)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 34,851 143,563
Decrease in securities sold under agreements to repurchase (43,535) (104,746)
Proceeds from Federal Home Loan Bank advances 3,000 83,000
Principal repayments on Federal Home Loan Bank advances (43,000) (69,000)
Proceeds from note payable 1,000 500
Purchase of treasury stock -- (784)
Proceeds from issuance of treasury stock -- 73
Dividends paid on common stock (288) (290)
--------- ---------
Net cash provided by (used in) financing activities (47,972) 52,316
--------- ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
NET INCREASE IN CASH AND CASH EQUIVALENTS 8,932 3,358
CASH AND CASH EQUIVALENTS
Beginning of period 9,501 11,779
--------- ---------
CASH AND CASH EQUIVALENTS
End of period $ 18,433 $ 15,137
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest $ 17,962 $ 23,225
</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 an
Indiana-chartered, registered 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 eight full-service
banking offices, five of which were opened since December 1997. The
Company is a community-focused financial institution with three distinct
banking units in Indiana, Kansas, and North Carolina. The Company's
business includes the gathering of deposits, the origination of mortgage
related and consumer loans, and the operation of a commercial loan
division for business customers. It also owns a 51% interest in
Harrington Wealth Management Company ("HWM"), which provides trust,
investment management, and custody services for individuals and
institutions (see Note 2). The Company manages a hedged mortgage
investment portfolio to utilize excess capital until it can be deployed
in community banking assets.
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,
--------------------------- ---------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Basic earnings per share:
Weighted average common shares 3,205,382 3,205,366 3,205,382 3,220,360
========= ========= ========= =========
Diluted earnings per share:
Weighted average common shares 3,205,382 3,205,366 3,205,382 3,220,360
Dilutive effect of stock options (1) --- --- --- ---
--------- --------- --------- ---------
Weighted average common and
incremental shares 3,205,382 3,205,366 3,205,382 3,220,360
========= ========= ========= =========
</TABLE>
(1) No dilutive effect of stock options for the three and nine months ended
March 31, 2000 and 1999 was used in the calculation as the effects of
the stock options were anti-dilutive.
<PAGE>
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.
4
<PAGE>
The results of operations for the three and nine months ended March 31,
2000 are not necessarily indicative of the results to be expected for
the year ending June 30, 2000. 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, 1999.
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 sheets
include 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, 2000
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.
Reclassifications of certain amounts in the fiscal year 1999
consolidated financial statements have been made to conform to the
fiscal year 2000 presentation.
Note 3 - Comprehensive Income
--------------------
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, 2000
and 1999 under SFAS No. 130:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(Dollars in Thousands) March 31, March 31,
2000 1999 2000 1999
-------- ---------- ------- --------
<S> <C> <C> <C> <C>
Net income (loss) $ (526) $ 622 $(1,945) $ (1,999)
-------- ---------- ------- --------
Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding gains arising
during period 17 4 20 23
-------- ---------- ------- --------
Other comprehensive income 17 4 20 23
-------- ---------- ------- --------
COMPREHENSIVE INCOME (LOSS) $ (509) $ 626 $(1,925) $ (1,976)
========= ========== ======== =========
</TABLE>
<PAGE>
Note 4 - Recent Accounting Pronouncements
--------------------------------
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, was issued in June 1998 and amended by SFAS No. 137,
Accounting for Derivative Instruments and Hedging Activities-Deferral of
the Effective Date of SFAS 133. SFAS 133, as amended by
5
<PAGE>
SFAS 137, is effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. This statement establishes accounting and
reporting standards for derivative instruments and 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 is currently in the process of determining the
effect, if any, of the new standard on the financial statements.
Note 5 - Subsequent Event
----------------
The Company has entered into a definitive agreement with Union Bank and
Trust to sell the Bank's two southern Indianapolis branches which have
been operating since March 1998 and had $38.8 million in deposits at
March 31, 2000. The Company determined that the branches did not
strategically fit with its market development on the north side of
Indianapolis in Hamilton County and operated at efficiency levels well
below its target levels. This transaction, subject to regulatory
approval, is estimated to generate a gross profit before expenses of
$1.3 million and is expected to close in the June 2000 quarter. The
actual proceeds may vary depending on the level of eligible deposits at
closing.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
At March 31, 2000, the Company's total assets amounted to $443.7
million, as compared to $471.3 million at June 30, 1999. The $27.7 million or
5.9% decrease in total assets during the nine months ended March 31, 2000 was
primarily the result of a $123.4 million decrease in securities held for trading
which was partially offset with a $59.8 million increase in securities available
for sale, a $23.0 million increase in net loans receivable and an $8.9 million
increase in cash and cash equivalents. The decrease in securities held for
trading is a result of the Company's reduction in the overall size of its
investment portfolio to allow for growth of loans and to reduce earnings
volatility from mark to market accounting. This decrease was partially offset by
the increase in the securities available for sale. The increase in net loans
receivable primarily reflected the Company's increase in the origination of
business loans through its commercial division. The decrease in the Company's
assets from June 30, 1999 to March 31, 2000 resulted in a $43.5 million decrease
in securities sold under agreements to repurchase and a $40.0 million decrease
in Federal Home Loan Bank advances which were partially offset by a $34.9
million increase in deposits and a $21.4 million increase in amounts due to
brokers. The growth in the deposits was primarily due to the retail deposit
growth from the new North Carolina banking unit.
Minority interest decreased by $73,000 from June 30, 1999 to $864,000 at
March 31, 2000. The financial statements as of and for the three and nine month
periods ended March 31, 2000 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, 2000, the Company's stockholders' equity amounted to $16.9
million, as compared to $19.1 million at June 30, 1999. The 11.6% decrease in
stockholders' equity was primarily due to the $1.9 million of net loss
recognized during the nine month period and the quarterly $0.03 per share
payments of cash dividends totaling $288,000. At March 31, 2000, the Bank's Tier
1 core capital amounted to $30.4 million or 6.9% of adjusted total assets, which
exceeded the minimum 4.0% requirement by $12.8 million. Additionally, as of such
date, the Bank's risk-based capital totaled $31.7 million or 13.3% of total
risk-adjusted assets, which exceeded the minimum 8.0% requirement by $12.7
million.
Results of Operations
General. The Company reported losses of $526,000 or $0.16 per share and
$1.9 million or $0.61 per share during the three and nine months ended March 31,
2000, as compared to earnings of $622,000 or $0.19 per share and losses of $2.0
million or $0.62 per share during the prior comparable periods. The $1.1 million
decrease in earnings during the three months ended March 31, 2000, as compared
to the same period in the prior year, was primarily due to a $2.1 million
decrease in realized and unrealized net gains on securities held for trading and
a $217,000 increase in operating expenses which were partially offset by a
$258,000 increase in
7
<PAGE>
net interest income and a $767,000 decrease in the Company's income tax
provision. The $54,000 decrease in losses during the nine months ended March 31,
2000, as compared to the same period in the prior year, was primarily due to a
$2.5 million increase in net interest income which was partially offset by a
$1.4 million increase in operating expenses and a $1.2 million increase in
realized and unrealized net losses on securities held for trading.
Selected Financial Ratios. The following schedule shows selected
financial ratios for the three and nine months ended March 31, 2000 and 1999.
<TABLE>
<CAPTION>
At or for the Three At or for the Nine
Months Ended Months Ended
March 31, March 31,
------------------------- -------------------------
2000 1999 2000 1999
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Return on average assets -0.50% 0.45% -0.55% -0.47%
Return on average equity -12.78 12.73 -14.70 -13.43
Interest rate spread (1) 1.94 1.29 1.75 0.88
Net interest margin (2) 2.04 1.34 1.84 0.92
Operating expenses to average assets 2.30 1.57 2.10 1.40
Efficiency ratio (3) 113.12 125.37 115.69 161.36
Non-performing assets to total assets 0.11 0.14 0.11 0.14
Loan loss reserves to non-performing loans 1,807.50 366.82 1,807.50 366.82
</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 decreased by $1.3 million or 14.8%
during the three months ended March 31, 2000, as compared to the same period in
the prior year. This decrease was primarily due to a $2.3 million decrease in
interest income from the Company's investment portfolio which was partially
offset by a $905,000 increase in interest income from the loan portfolio. The
decrease in interest income from the Company's investment portfolio was a result
of a $163.4 million decrease in the level of the average investment portfolio
which was partially offset by a 76 basis point increase in the interest yield
earned. The Company substantially reduced the investment portfolio to allow for
the growth of loans and to reduce earnings volatility from mark-to-market
accounting. The increase in interest income on the loan portfolio was a direct
result of the $33.5 million increase in the level of the average loan portfolio
in addition to a 56 basis point increase in the interest yield earned. The net
increase in the average balance and interest yield earned on the Company's loan
portfolio is primarily due to the origination of business loans through its
commercial division.
Interest income decreased by $2.5 million or 9.2% during the nine months
ended March 31, 2000, as compared to the same period in the prior year. This
decrease was primarily due to a $6.9 million decrease in interest income from
<PAGE>
the Company's investment portfolio which was partially offset by a $3.8 million
increase in interest income from the loan portfolio and a $534,000 decrease in
net interest expense on interest rate contracts maintained in the trading
portfolio. The decrease in interest income from the Company's investment
portfolio was a result of a $161.2 million decrease in the level of the average
investment portfolio which was partially offset by a 65 basis point increase in
the interest yield earned. The increase in interest income on
8
<PAGE>
the loan portfolio was a direct result of the $60.4 million increase in the
level of the average loan portfolio in addition to a 22 basis point increase in
the interest yield earned. Maturities and change in composition of the interest
rate contract agreements were primarily the cause of the decrease in net
interest expense on interest rate contracts maintained in the trading portfolio.
Interest Expense. Interest expense decreased by $1.5 million during the
three months ended March 31, 2000, as compared to the same period in the prior
year. This decrease was primarily due to a $128.0 million decrease in the level
of average interest-bearing liabilities which was partially offset by a 22 basis
point increase in the cost of interest-bearing liabilities.
Interest expense decreased by $4.9 million during the nine months ended
March 31, 2000, as compared to the same period in the prior year. This increase
was primarily due to a $5.0 million decrease in the level of average
interest-bearing liabilities and a 26 basis point decrease in the cost of
interest-bearing liabilities.
Net Interest Income. Net interest income increased by $258,000 or 14.3%
during the three months ended March 31, 2000, as compared to the same period in
the prior year. Net interest income increased by $2.5 million or 65.7% during
the nine months ended March 31, 2000, as compared to the same period in the
prior year. The net interest margin, defined as net interest income divided by
average interest-earning assets, for the three and nine months ended March 31,
2000 was 2.04% and 1.84%, respectively, as compared to 1.34% and 0.92% for the
three and nine months ended March 31, 1999.
Provision for Loan Losses. During the three and nine months ended March
31, 2000, the Company increased the general allowance for loan losses by
$164,000 and $478,000, respectively, in response to the continued loan growth.
Delinquencies and loan write-offs continue to be minimal, and the non-performing
assets remain stable. 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 continued loan growth.
Other Income (Loss). Total other income (loss) amounted to $(402,000)
and $(1.7) million during the three and nine months ended March 31, 2000, as
compared to $1.6 million and $(725,000) during the respective periods in the
prior year. Other 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 fair value of its securities portfolio with the change
in the fair 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, 2000, the Company recognized
$4.4 million of realized losses on the sale of securities held for trading,
$594,000 of realized gains on futures instruments and $3.2 million of unrealized
gains on securities and hedges held for trading. During the nine months ended
March 31, 2000, the Company recognized $8.7 million of realized losses on the
sale of securities held for trading, $2.8 million of realized gains on futures
9
<PAGE>
instruments and $3.6 million of unrealized gains on securities and hedges held
for trading. The total net realized and unrealized loss of $611,000 for the
March 31, 2000 quarter was attributable to the widening of spreads between the
Company's mortgage investment securities and its LIBOR hedges. In the March 2000
quarter, the U.S. Treasury Department announced that it would redeem Treasury
notes and bonds, causing a supply/demand imbalance between Treasury and other
debt instruments, and officials announced that they were supporting legislation
for the privatization of government sponsored enterprises such as the Federal
National Mortgage Association (FNMA) and the Federal Home Loan Mortgage
Corporation (FHLMC). The latter event caused the yields on the debt and mortgage
securities of these entities to widen to both Treasury and LIBOR. The total net
realized and unrealized loss of $2.3 million for the nine months ended March 31,
2000 was due to overall wider spreads between comparable duration U.S. Treasury
hedges and mortgage rates existing on June 30, 1999.
During the three months ended March 31, 1999, the Company recognized
$9,000 of realized gains on the sale of securities held for trading and $5.4
million of realized gains on futures instruments which were partially offset by
$4.0 million of unrealized losses on securities and hedges held for trading.
During the nine months ended March 31, 1999, the Company recognized $1.9 million
of realized gains on the sale of securities held for trading, $2.8 million of
realized losses on futures instruments 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 U.S. Treasury and mortgage rates declined to the lowest 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 slight narrowing of risk adjusted spreads on
mortgages and strategic trades between adjustable and fixed rate securities
contributed to a significant improvement in performance, as hedge gains exceeded
the losses on the mortgage investments.
Other Expense. Total other expense amounted to $2.4 million and $7.4
million during the three and nine months ended March 31, 2000, as compared to
$2.2 million and $6.0 million during the respective period 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 new branch
offices in Mission, Kansas and Chapel Hill, North Carolina), the operating
systems conversion, and Year 2000 compliance related expenses.
In order to streamline the senior management organization and increase
operating efficiency, the senior management organization was realigned in the
March 2000 quarter. As a result of this realignment, the Chief Operating Officer
position, two mortgage loan operations positions, and a marketing staff position
were eliminated. These changes, along with the sale of the two southern Indiana
branches, will enable the Company to reduce future operating expenses.
Income Tax Provision (Benefit). The Company recorded an income tax
benefit of $356,000 during the three months ended March 31, 2000 as compared to
a provision of $411,000 during the respective period in the prior year. For the
nine months ended March 31, 2000 and
10
<PAGE>
1999, the Company recorded income tax benefits of $1.3 million. During the three
and nine months ended March 31, 2000, the Company's effective tax rate amounted
to 39.3% and 39.1% as compared to 40.3% and 39.4% during the same periods in
fiscal year 1999.
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.
The total eligible regulatory liquidity of the Bank was 16.5% at March
31, 2000, as compared to 16.7% and 15.6% at June 30, 1999 and 1998,
respectively. At March 31, 2000, the Bank's average "liquid" assets totaled
approximately $74.6 million, which was $56.5 million in excess of the current
OTS minimum requirement.
At March 31, 2000, the Company's total approved originated loan
commitments outstanding amounted to $2.0 million, and the unused lines of credit
outstanding totaled $22.6 million. Certificates of deposit scheduled to mature
in one year or less at March 31, 2000 totaled $150.5 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.
11
<PAGE>
Segment Information
The Company's principal business lines include community banking in the
Indiana, Kansas and North Carolina markets, investment activities including
treasury management, HWM (see Notes 1 and 2) and other activities including the
unconsolidated holding company functions. For the three and nine months ended
March 31, 1999, the other category also includes start-up costs for the North
Carolina bank which opened in July of 1999 and is treated as a separate segment
from that time forward. In addition, the results of operations of the Company's
trust department through January 31, 1999 are included in the other category for
the three and nine months ended March 31, 1999. The community banking segment
provides a full range of deposit products as well as mortgage, consumer and
commercial loans in its designated markets. The investment segment is comprised
of the Company's held for trading, available for sale and held to maturity
securities, as well as the treasury management function. A standard investment
return is allocated to each of the Community Banking segments based on whether
the segment is a funds provider (excess deposits relative to loans) or user
(excess loans relative to deposits). If the segment generates excess funds, then
it is assigned an investment return on those excess funds of one month LIBOR
plus 0.75%. If the banking segment is a funds user, those funds are provided
from the Investments segment at one month LIBOR flat. The overall profitability
of the Investment and Community Banking segments is therefore affected by this
funds transfer methodology. The financial information for each operating segment
is reported on the basis used internally by the Company's management to evaluate
performance and allocate resources.
The measurement of the performance of the operating segments is based on
the management and corporate structure of the Company and is not necessarily
comparable with similar information for any other financial institution. The
information presented is also not necessarily indicative of the segments' asset
size and results of operations if they were independent entities.
12
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended March 31, 2000
---------------------------------------------------------------------------------------------
(Dollars in Thousands) COMMUNITY BANKING
-----------------------------------------
Indiana Kansas North Carolina INVESTMENTS HWM OTHER TOTAL
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income
(expense)(1) $ 1,232 $ 607 $ 98 $ 424 $ 24 $ (328) $ 2,057
Provision for loan losses (20) (137) (7) -- -- -- (164)
--------- --------- --------- --------- --------- --------- ---------
Net interest income
(expense) after
provision for loan losses 1,212 470 91 424 24 (328) 1,893
Other operating income 177 16 2 1 29 -- 225
Depreciation expense 132 28 19 10 2 2 193
Other operating expense 1,166 324 247 207 127 132 2,203
--------- --------- --------- --------- --------- --------- ---------
CORE BANKING INCOME
(LOSS) BEFORE TAXES 91 134 (173) 208 (76) (462) (278)
Realized and unrealized
gain (loss)
on securities, net of hedging -- -- -- (618) -- 7 (611)
Loss on sale of REO/repo autos (16) -- -- -- -- -- (16)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before 75 134 (173) (410) (76) (455) (905)
income taxes
Applicable income taxes 29 52 (68) (159) (29) (181) (356)
--------- --------- --------- --------- --------- --------- ---------
NET INCOME (LOSS) BEFORE
MINORITY INTEREST 46 82 (105) (251) (47) (274) (549)
Minority interest, net of taxes -- -- -- -- 23 -- 23
--------- --------- --------- --------- --------- --------- ---------
NET INCOME (LOSS) $ 46 $ 82 $ (105) $ (251) $ (24) $ (274) $ (526)
========= ========= ========= ========= ========= ========= =========
Identifiable assets $ 224,821 $ 54,540 $ 7,796 $ 146,973 $ 1,755 $ 7,770 $ 443,655
========= ========= ========= ========= ========= ========= =========
</TABLE>
(1) Interest income is presented net of interest expense
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended March 31, 2000
---------------------------------------------------------------------------------------------
(Dollars in Thousands) COMMUNITY BANKING
-----------------------------------------
Indiana Kansas North Carolina INVESTMENTS HWM OTHER TOTAL
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income
(expense) (1) $ 3,625 $ 1,741 $ 162 $ 1,643 $ 68 $ (940) $ 6,299
Provision for loan losses (123) (316) (39) -- -- -- (478)
--------- --------- --------- --------- --------- --------- ---------
Net interest income
(expense) after 3,502 1,425 123 1,643 68 (940) 5,821
provision for loan losses
Other operating income 477 37 1 3 75 -- 593
Depreciation expense 397 82 57 32 6 6 580
Other operating expense 3,724 1,008 759 631 378 340 6,840
--------- --------- --------- --------- --------- --------- ---------
CORE BANKING INCOME
(LOSS) BEFORE TAXES (142) 372 (692) 983 (241) (1,286) (1,006)
Realized and unrealized
gain (loss)
on securities, net of hedging -- -- -- (2,276) -- 16 (2,260)
Loss on sale of REO/repo autos (47) -- -- -- -- -- (47)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before (189) 372 (692) (1,293) (241) (1,270) (3,313)
income taxes
Applicable income taxes (75) 144 (270) (499) (93) (503) (1,296)
--------- --------- --------- --------- --------- --------- ---------
NET INCOME (LOSS) BEFORE
MINORITY INTEREST (114) 228 (422) (794) (148) (767) (2,017)
Minority interest, net of taxes -- -- -- -- 72 -- 72
--------- --------- --------- --------- --------- --------- ---------
NET INCOME (LOSS) $ (114) $ 228 $ (422) $ (794) $ (76) $ (767) $ (1,945)
========= ========= ========= ========= ========= ========= =========
Identifiable assets $ 224,821 $ 54,540 $ 7,796 $ 146,973 $ 1,755 $ 7,770 $ 443,655
========= ========= ========= ========= ========= ========= =========
</TABLE>
(1) Interest income is presented net of interest expense
13
<PAGE>
<TABLE>
<CAPTION>
(Dollars in Thousands) Three Months Ended March 31, 1999
------------------------------------------------------------------------------
COMMUNITY BANKING
-----------------------
Indiana Kansas INVESTMENTS HWM OTHER TOTAL
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net interest income (expense)(1) $ 1,225 $ 265 $ 562 $ 12 $ (265) $ 1,799
Provision for loan losses (56) (113) -- -- -- (169)
--------- --------- --------- --------- --------- ---------
Net interest income (expense)
after provision for loan losses 1,169 152 562 12 (265) 1,630
Other operating income 85 5 1 10 7 108
Depreciation expense 100 18 6 1 2 127
Other operating expense 1,244 313 234 67 194 2,052
--------- --------- --------- --------- --------- ---------
CORE BANKING INCOME (LOSS)
BEFORE TAXES (90) (174) 323 (46) (454) (441)
Realized and unrealized gain (loss)
on securities, net of hedging -- -- 1,467 -- (7) 1,460
--------- --------- --------- --------- --------- ---------
Income (loss) before income
taxes (90) (174) 1,790 (46) (461) 1,019
Applicable income taxes (35) (67) 711 (19) (179) (411)
--------- --------- --------- --------- --------- ---------
NET INCOME (LOSS) BEFORE
MINORITY INTEREST (55) (107) 1,079 (27) (282) 608
Minority interest, net of taxes -- -- -- 14 -- 14
--------- --------- --------- --------- --------- ---------
NET INCOME (LOSS) $ (55) $ (107) $ 1,079 $ (13) $ (282) $ 622
========= ========= ========= ========= ========= =========
Identifiable assets $ 223,468 $ 40,513 $ 264,315 $ 1,883 $ 8,132 $ 538,311
========= ========= ========= ========= ========= =========
</TABLE>
(1) Interest income is presented net of interest expense
<PAGE>
<TABLE>
<CAPTION>
(Dollars in Thousands) Nine Months Ended March 31, 1999
------------------------------------------------------------------------------
COMMUNITY BANKING
-----------------------
Indiana Kansas INVESTMENTS HWM OTHER TOTAL
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net interest income (expense)(1) $ 3,201 $ 414 $ 1,003 $ 12 $ (829) $ 3,801
Provision for loan losses (134) (280) -- -- -- (414)
--------- --------- --------- --------- --------- ---------
Net interest income (expense)
after provision for loan losses 3,067 134 1,003 12 (829) 3,387
Other operating income 247 7 5 10 52 321
Depreciation expense 301 48 18 1 9 377
Other operating expense 3,432 846 648 67 615 5,608
--------- --------- --------- --------- --------- ---------
CORE BANKING INCOME (LOSS)
BEFORE TAXES (419) (753) 342 (46) (1,401) (2,277)
Realized and unrealized loss
on securities, net of hedging -- -- (995) -- (51) (1,046)
--------- --------- --------- --------- --------- ---------
Loss before income taxes (419) (753) (653) (46) (1,452) (3,323)
Applicable income taxes (166) (297) 259 (19) 569 1,310
--------- --------- --------- --------- --------- ---------
NET LOSS BEFORE
MINORITY INTEREST (253) (456) (394) (27) (883) (2,013)
Minority interest, net of taxes -- -- -- 14 -- 14
--------- --------- --------- --------- --------- ---------
NET LOSS $ (253) $ (456) $ (394) $ (13) $ (883) $ (1,999)
========= ========= ========= ========= ========= =========
Identifiable assets $ 223,468 $ 40,513 $ 264,315 $ 1,883 $ 8,132 $ 538,311
========= ========= ========= ========= ========= =========
</TABLE>
(1) Interest income is presented net of interest expense
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 (NPV) of an institution's existing assets, liabilities and
off-balance sheet instruments. A post shock MVPE to market value of assets (NPV)
ratio can then be calculated in each interest rate scenario. 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, 2000, the estimated
sensitivity of the Bank's MVPE and NPV ratios to parallel yield curve shifts
using the Company's internal market value calculation. 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.
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.
15
<PAGE>
<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>
Market value gain (loss) of assets $ 24,388 $ 19,034 $ 10,762 -- $ (12,390) $(24,922) $(36,978)
Market value gain (loss) of liabilities (9,335) (6,676) (3,621) -- 4,346 9,331 14,597
---------- --------- ---------- ------ --------- --------- ---------
Market value gain (loss) of net
assets before interest rate contracts 15,053 12,358 7,141 -- (8,044) (15,591) (22,381)
Pre-tax market value gain (loss) of
interest rate contracts (17,292) (12,054) (6,355) -- 6,797 13,665 20,353
---------- ---------- ---------- ------ --------- --------- ---------
Total change in MVPE (2) (Model) $ (2,239) $ 304 $ 786 -- $ (1,247) $ (1,926) $ (2,028)
========== ========== ========== ====== ========= ========= =========
NPV post shock ratio 6.6% 7.3% 7.5% 7.5% 7.4% 7.5% 7.7%
========== ========== ========== ====== ========= ========= =========
Change in MVPE as a percent of:
MVPE (2) (Model) (7.3)% 1.0% 2.6% -- (4.1)% (6.3)% (6.7)%
Total assets of the Bank (0.5)% 0.1% 0.2% -- (0.3)% (0.4)% (0.5)%
Change in NPV post shock ratio (0.9)% (0.2)% 0.0% -- (0.1)% 0.0% 0.2%
</TABLE>
(1) Assumes an instantaneous parallel change in interest rates at all
maturities.
(2) Based on the Bank's pre-tax MVPE of $30.5 million at March 31, 2000.
Since a 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 fair 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%.
<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 $ 2,631 $ 1,723 $ 913 -- $ (1,132) $ (2,449) $(3,894)
After tax market value gain (loss)
of interest rate contracts (2,237) (1,566) (817) -- 869 1,768 2,680
------- --------- --------- ------- -------- -------- -------
After tax gain (loss) in equity (Model) $ 394 $ 157 $ 96 -- $ (263) $ (681) $(1,214)
======= ========= ========= ======= ======== ======== =======
After tax gain (loss) in equity as a
percent of the Company's equity
at March 31, 2000 2.3% 0.9% 0.6% -- (1.6)% (4.0)% (7.2)%
</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 27: Financial Data Schedule
d) 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 9, 2000 By: /s/ Craig J. Cerny
------------------
Craig J. Cerny
President
Date: May 9, 2000 By: /s/ John E. Fleener
-------------------
John E. Fleener
Principal Financial & Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 2,025
<INT-BEARING-DEPOSITS> 16,408
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 59,804
<INVESTMENTS-HELD-FOR-SALE> 60,343
<INVESTMENTS-CARRYING> 4,020
<INVESTMENTS-MARKET> 4,018
<LOANS> 283,969
<ALLOWANCE> 1,319
<TOTAL-ASSETS> 443,655
<DEPOSITS> 368,096
<SHORT-TERM> 16,663
<LIABILITIES-OTHER> 26,112
<LONG-TERM> 14,995
0
0
<COMMON> 425
<OTHER-SE> 16,500
<TOTAL-LIABILITIES-AND-EQUITY> 443,655
<INTEREST-LOAN> 15,076
<INTEREST-INVEST> 8,375
<INTEREST-OTHER> 633
<INTEREST-TOTAL> 24,084
<INTEREST-DEPOSIT> 13,417
<INTEREST-EXPENSE> 17,785
<INTEREST-INCOME-NET> 6,299
<LOAN-LOSSES> 478
<SECURITIES-GAINS> (1,714)
<EXPENSE-OTHER> 7,420
<INCOME-PRETAX> (3,313)
<INCOME-PRE-EXTRAORDINARY> (1,945)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,945)
<EPS-BASIC> (0.61)
<EPS-DILUTED> (0.61)
<YIELD-ACTUAL> 1.75
<LOANS-NON> 73
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 868
<CHARGE-OFFS> 27
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,319
<ALLOWANCE-DOMESTIC> 1,319
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
