<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
March 31, 1997
_____________________
Commission File Number 001-14070
PIEDMONT BANCORP, INC.
-----------------------
(Exact Name of Registrant as Specified in its Charter)
North Carolina 56-1936232
-------------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
260 South Churton Street, Hillsborough, NC 27278
- ------------------------------------------ -----
(Address of Principal Executive Offices) (Zip Code)
(Registrant's telephone number, including area code) (919) 732-2143
--------------
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.
[ X ] Yes [ ] No
As of May 6, 1997, 2,750,800 shares of the registrant's common stock, no par
value, were outstanding. The registrant has no other classes of securities
outstanding.
This Form 10-Q report has 22 pages.
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1 - Financial Statements
PIEDMONT BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION (unaudited)
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
(unaudited) *
------------- -------------
(in thousands, except shares)
Assets
------
<S> <C> <C>
Cash $ 933 $ 723
Interest-bearing deposits in other financial institutions 1,491 1,947
Investment securities:
Available-for-sale (cost: $12,551 at March 31, 1997 and 12,197 27,098
$28,049 at June 30, 1996)
Held-to-maturity (market value: $3,522 at March 31, 1997 and 3,506 3,519
$3,477 at June 30, 1996)
Loans receivable (net of allowance for loan losses of $772 and
$608 at March 31, 1997 and June 30, 1996, respectively) 96,086 91,187
Federal Home Loan Bank stock, at cost 920 863
Premises and equipment 1,213 1,324
Prepaid expenses and other assets 2,173 2,050
--------- ---------
Total assets $ 118,519 $ 128,711
========= =========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities
-----------
Deposits :
Non-interest bearing 1,771 1,643
Interest-bearing 80,149 71,718
--------- ---------
81,920 73,361
Advances from the Federal Home Loan Bank 15,500 17,250
Accrued expenses and other liabilities 999 1,050
--------- ---------
Total liabilities 98,419 91,661
--------- ---------
Stockholders' Equity
--------------------
Common stock, no par value, 20,000,000 shares authorized;
2,750,800 and 2,645,000 shares issued and outstanding at
March 31, 1997 and June 30, 1996, respectively 7,651 25,398
Unearned ESOP shares (1,007) (2,552)
Unamortized deferred compensation (1,345) --
Unallocated restricted stock (21) --
Retained earnings, substantially restricted (note 6) 15,037 14,783
Unrealized holding losses on available-for-sale securities (215) (579)
--------- ---------
Total stockholders' equity 20,100 37,050
--------- ---------
Total liabilities and stockholders' equity $ 118,519 $ 128,711
========= =========
</TABLE>
* Derived from audited financial statements
See accompanying notes to consolidated financial statements.
2
<PAGE>
PIEDMONT BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Interest on loans $ 2,013 $ 1,878 $ 5,987 $ 5,708
Interest on deposits in other financial institutions 17 41 84 209
Interest and dividends on investment securities:
Taxable 219 322 817 753
Non-taxable 49 122 303 208
------- ------- ------- -------
Total interest income 2,298 2,363 7,191 6,878
------- ------- ------- -------
Interest expense:
Interest on deposits 914 852 2,665 2,771
Interest on borrowings 244 181 752 577
------- ------- ------- -------
Total interest expense 1,158 1,033 3,417 3,348
------- ------- ------- -------
Net interest income 1,140 1,330 3,774 3,530
Provision for loan losses 20 21 638 75
------- ------- ------- -------
Net interest income after provision for loan losses 1,120 1,309 3,136 3,455
------- ------- ------- -------
Other income:
Customer service and other fees 50 42 149 130
Mortgage loan servicing fees 21 22 65 71
Gain (loss) on sale of investment securities -- -- (132) --
Lower-of-cost or market adjustment on loans held-for-sale (18) (6) 22 (6)
Other 17 21 49 50
------- ------- ------- -------
Total other income 70 79 153 245
------- ------- ------- -------
Other expenses:
Compensation and fringe benefits (note 5) 374 348 2,762 1,034
SAIF recapitalization assessment -- -- 487 --
Data and items processing 63 63 186 181
Deposit insurance premiums 13 43 58 130
Occupancy expense 25 30 86 91
Furniture and equipment expense 30 29 92 72
Professional fees 28 31 98 82
Other 84 98 323 247
------- ------- ------- -------
Total other expenses 617 642 4,092 1,837
------- ------- ------- -------
Income (loss) before income tax expense 573 746 (803) 1,863
Income tax expense 201 243 73 649
------- ------- ------- -------
Net income (loss) $ 372 $ 503 $ (876) $ 1,214
======= ======= ======= =======
Net income (loss) per share (notes 2 and 7) $ 0.14 $ 0.20 $ (0.33) $ 0.25
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
PIEDMONT BANCORP, INC. AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY (unaudited)
<TABLE>
<CAPTION>
Unearned Unamortized Unallocated
Shares Common ESOP Deferred Restricted
Outstanding Stock Shares Compensation Stock
----------- ----- ------ ------------ -----
(dollars in thousands, except shares)
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1996 2,645,00 $25,398 $(2,552) $ -- $ --
Net income (loss) -- -- -- -- --
Issuance of restricted stock 105,800 1,587 -- (1,587) --
Release of ESOP shares -- 105 1,545 -- --
Amortization of unearned compensation -- -- -- 161 --
Forfeiture of restricted stock and related dividends -- 105 -- 224 (224)
Allocation of restricted stock -- (60) -- (143) 203
Tax benefit of dividends on restricted stock -- 279 -- -- --
Cash dividends -- (19,763) -- -- --
Change in unrealized holding gains (losses),
net of income tax -- -- -- -- --
--------- ------- ------- ------- -------
Balance at March 31, 1997 2,750,800 $ 7,651 $(1,007) $(1,345) $ (21)
========= ======= ======= ======= =======
Balance at June 30, 1995 -- $ -- $ -- $ -- $ --
Net income -- -- -- -- --
Net proceeds from issuance of no par common stock 2,645,000 25,398 -- -- --
Common stock acquired by ESOP -- -- (2,731) -- --
Release of ESOP shares -- -- 105 -- --
Cash dividends -- -- -- -- --
Change in unrealized holding gains (losses),
net of income tax -- -- -- -- --
--------- ------- ------- ------- -------
Balance at March 31, 1996 2,645,00 $25,398 $(2,626) $ -- $ --
========= ======= ======= ======= =======
<CAPTION>
Unrealized Total
Retained holding gains Stockholders'
Earnings (losses) Equity
-------- ------- ------
<S> <C> <C> <C>
Balance at June 30, 1996 $ 14,783 $ (579) $ 37,050
Net income (loss) (876) -- (876)
Issuance of restricted stock -- -- --
Release of ESOP shares -- -- 1,650
Amortization of unearned compensation -- -- 161
Forfeiture of restricted stock and related dividends 2 -- 107
Allocation of restricted stock -- -- --
Tax benefit of dividends on restricted stock -- -- 279
Cash dividends 1,128 -- (18,635)
Change in unrealized holding gains (losses),
net of income tax -- 364 364
-------- -------- --------
Balance at March 31, 1997 $ 15,037 $ (215) $ 20,100
======== ======== ========
Balance at June 30, 1995 $ 13,624 $ 22 $ 13,646
Net income 1,214 -- 1,214
Net proceeds from issuance of no par common stock -- -- 25,398
Common stock acquired by ESOP -- -- (2,731)
Release of ESOP shares -- -- 105
Cash dividends (244) -- (244)
Change in unrealized holding gains (losses),
net of income tax -- (224) (224)
-------- -------- --------
Balance at March 31, 1996 $ 14,594 $ (202) $ 37,164
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
PIEDMONT BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
------------------------
1997 1996
---- ----
<S> <C> <C>
Operating activities:
Net income $ (876) $ 1,214
Adjustments to reconcile net income to net cash provided (used) by operating activities
Depreciation 68 68
Net amortization (accretion) 67 108
Provision for loan losses 638 75
Net loss on sale of investments and mortgage-backed securities 132 --
Release of ESOP shares 1,650 105
Compensation earned under MRP 161 --
Net decrease (increase) in mortgage loans held for sale 287 (1,835)
Increase in other assets (68) (467)
Increase (decrease) in other liabilities (26) 19
-------- --------
Net cash provided (used) by operating activities 2,033 (713)
-------- --------
Investing activities:
Net (increase) decrease in loans held for investment (5,846) (2,186)
Principal collected on mortgage-backed securities 458 507
Purchases of investment securities classified as available-for-sale -- (19,992)
Purchases of investment securities classified as held-to-maturity -- (1,422)
Purchases of mortgage-backed securities classified as available-for-sale (1,576) (1,482)
Proceeds from sales of investment securities classified as available-for-sale 12,645 --
Proceeds from sales of mortgage-backed securities classified as available-for-sale 3,847 --
Proceeds from investment securities called by issuer -- 4,500
Purchases of premises and equipment (17) (32)
-------- --------
Net cash provided (used) by investing activities 9,511 (20,107)
-------- --------
Financing activities:
Net increase (decrease) in time deposits 3,544 (4,608)
Net increase in other deposits 5,015 1,155
Proceeds from borrowings 11,000 8,250
Repayments of borrowings (12,750) (7,500)
Proceeds from issuance of no par common stock -- 25,398
Purchase of common stock for ESOP -- (2,731)
Cash dividends paid to shareholders (18,599) (244)
-------- --------
Net cash provided (used) by financing activities (11,790) 19,720
-------- --------
Increase (decrease) in cash and cash equivalents (246) (1,100)
Cash and cash equivalents at beginning of period 2,670 3,136
-------- --------
Cash and cash equivalents at end of period $ 2,424 $ 2,036
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 3,386 $ 3,351
-------- --------
Income taxes $ 339 $ 693
======== ========
Supplemental disclosure of noncash transactions:
Unrealized gains (losses) on available-for-sale securities,
net of deferred taxes of $234 and $(38) $ 364 $ (224)
======== ========
Dividends declared but unpaid $ 267 --
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
PIEDMONT BANCORP, INC. and SUBSIDIARY
Notes to Consolidated Financial Statements
1) Organization and Operations
---------------------------
In December, 1995, pursuant to a Plan of Conversion approved by its members
and regulators, Hillsborough Savings Bank, Inc., SSB (the "Bank") amended and
restated its charter to effect its conversion from a North Carolina chartered
mutual savings bank to a North Carolina chartered stock savings bank (the
"Conversion") and became a wholly-owned subsidiary of Piedmont Bancorp, Inc.,
(the "Parent"), a holding company formed in connection with the Conversion.
The Bank is primarily engaged in the business of obtaining savings deposits
and providing loans to the general public. The principal activity of the
Parent is ownership of the Bank.
2) Basis of Presentation
---------------------
The consolidated financial statements include the accounts of the Parent and
the Bank, together referred to as "the Company". All significant intercompany
transactions and balances are eliminated in consolidation. The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities as of the date of the balance sheets and the reported
amounts of income and expenses for the period presented. Actual results could
differ significantly from those estimates. In management's opinion, the
financial information, which is unaudited, reflects all adjustments
(consisting solely of normal recurring adjustments) necessary for a fair
presentation of the financial information as of March 31, 1997 and for the
three and nine month periods ended March 31, 1997 and March 31, 1996 in
conformity with generally accepted accounting principles. Operating results
for the three and nine month periods ended March 31, 1997 are not necessarily
indicative of the results that may be expected for the fiscal year ending
June 30, 1997.
3) Cash and Cash Equivalents
-------------------------
For purposes of reporting cash flows, the Company considers cash and
interest-bearing deposits in other financial institutions with original
maturities of three months or less to be cash equivalents.
4) Adoption of Statements of Financial Accounting Standards ("SFAS")
-----------------------------------------------------------------
The FASB has issued SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and Long-Lived Assets to be Disposed Of". SFAS 121 requires that
long-lived assets and certain identifiable intangibles to be held and used by
an entity be reviewed for impairment whenever events or changes in the
circumstances indicate that the carrying amount of an asset may not be
recoverable. In evaluating recoverability, if estimated future cash flows,
undiscounted and without interest charges, are less than the carrying amount
of the asset, an impairment loss is recognized. SFAS 121 also requires that
certain long-lived assets and certain identifiable intangibles to be
6
<PAGE>
PIEDMONT BANCORP, INC. and SUBSIDIARY
Notes to Consolidated Financial Statements
4) Adoption of Statements of Financial Accounting Standards ("SFAS"), continued
----------------------------------------------------------------------------
disposed of be reported at the lower of carrying amount or fair value less
cost to sell. SFAS 121 applies prospectively for fiscal years beginning after
December 15, 1995. As required, the Company adopted the provisions of this
statement in the quarter ended September 30, 1996 with no impact to the
consolidated financial statements.
The FASB has also issued SFAS No. 122, "Accounting for Mortgage Servicing
Rights, an amendment of FASB Statement No. 65," which provides guidance for
the capitalization of originated as well as purchased mortgage servicing
rights and the measurement of impairment of those rights. SFAS 122 requires
that an entity recognize as separate assets the rights to service mortgage
loans for others, however those servicing rights are acquired. SFAS 122 also
requires that an entity assess its capitalized mortgage servicing rights for
impairment based on the fair value of those rights. It should stratify its
mortgage servicing rights based on one or more predominant risk
characteristics of the underlying loans, and recognize impairment through a
valuation allowance for each impaired stratum. SFAS 122 applies prospectively
for fiscal years beginning after December 15, 1995. As required, the Company
adopted the provisions of this statement in the quarter ended September 30,
1996, but the impact of such adoption was immaterial.
5) Employee and Director Benefit Plans
-----------------------------------
In conjunction with the mutual to stock conversion, the Bank's defined
contribution retirement plan was terminated as of July 31, 1995. Funds were
distributed in October 1995. There was no gain or loss upon the termination
of the defined contribution retirement plan.
The Company has an employee stock ownership plan ("ESOP") whereby an
aggregate number of shares amounting to 211,600 were purchased for future
allocation to employees. Contributions to the ESOP are made by the Bank on a
discretionary basis, and are allocated among ESOP participants on the basis
of relative compensation in the year of allocation. Benefits will vest in
full upon five years of service with credit given for years of service prior
to the conversion. The ESOP was funded by a $40,000 cash contribution from
the Bank in December 1995 and a loan from the Parent in the amount of
$2,690,677. The loan is secured by shares of stock purchased by the ESOP and
is not guaranteed by the Bank. Principal and interest payments on this loan
are funded primarily from discretionary contributions by the Bank. Dividends,
if any, paid on shares held by the ESOP may also be used to reduce the loan.
Dividends on unallocated shares which are used to repay debt are not reported
as dividends in the consolidated financial statements but rather are recorded
as an element of compensation expense. Dividends on allocated shares are
credited to the accounts of the participants and reported as dividends in the
consolidated financial statements.
At December 31, 1996, approximately 126,000 shares were released and
allocated to ESOP participants. This significant release and allocation of
shares under the ESOP was mainly due to the $7.00 special dividend paid on
the Company's stock on December 6, 1996, and management's decision to use the
dividends on unallocated shares to repay debt to the Parent.
7
<PAGE>
PIEDMONT BANCORP, INC. and SUBSIDIARY
Notes to Consolidated Financial Statements
5) Employee and Director Benefit Plans, continued
----------------------------------------------
The significant allocation resulted in larger than normal ESOP-related
compensation expense during the second quarter of the fiscal year.
Compensation expense related to the ESOP for the nine month period ended
March 31, 1997 is $1,650,000. The decision by management to utilize the
dividends to accelerate the repayment of ESOP related debt to the Parent is
expected to result in lower ESOP-related compensation expense in future
quarters. For the three month period ended March 31, 1997, ESOP-related
compensation expense totaled $47,000.
The Bank has a management recognition plan ("MRP") which serves as a means of
providing existing directors and employees of the Bank with an ownership
interest in the Company. On August 29, 1996, restricted stock awards of
105,800 shares were made to 38 directors, officers, and employees of the
Bank. The shares awarded under the MRP were issued from authorized but
unissued shares of common stock at no cost to recipients. The shares granted
vest at a rate of 20% each year on the anniversary of the initial award of
shares so that the shares will be completely vested at the end of five years.
During the third quarter of fiscal 1997, three MRP participants forfeited a
total of 14,914 restricted, non-vested shares of the Company's stock and
$107,679 of dividends previously paid to the participants on those restricted
shares. The Bank allocated 13,500 of the forfeited restricted shares to new
MRP participants during the quarter ending March 31, 1997, leaving 1,414
restricted shares unallocated under the MRP. The dividends refunded to the
Bank have been reflected as an addition to equity in the same ratio the
dividends were originally paid to the former participants. Compensation
expense of $55,000 and $161,000 associated with the MRP was recorded during
the three and nine month periods ended March 31, 1997, respectively.
6) Regulatory Restrictions
-----------------------
At the time of conversion, the Bank established a liquidation account in an
amount equal to its net worth at June 30, 1995. The liquidation account will
be maintained for the benefit of eligible deposit account holders who
continue to maintain their deposit accounts in the Bank after conversion.
Only in the event of a complete liquidation will each eligible deposit
account holder be entitled to receive a liquidation distribution from the
liquidation account in the amount of the current adjusted subaccount balance
for deposit accounts then held before any liquidation distribution may be
made with respect to common stock. Dividends paid subsequent to the
conversion cannot be paid from this liquidation account.
The Bank may not declare or pay a cash dividend on or repurchase any of its
common stock if its net worth would thereby be reduced below either the
aggregate amount then required for the liquidation account or the minimum
regulatory capital requirements imposed by federal and state regulations. In
addition, for a period of five years after the conversion, the Bank will be
required, under existing North Carolina regulations, to obtain prior written
approval of the Administrator before it can declare and pay a cash dividend
on its capital stock in an amount in
8
<PAGE>
PIEDMONT BANCORP, INC. and SUBSIDIARY
Notes to Consolidated Financial Statements
6) Regulatory Restrictions, continued
----------------------------------
excess of one-half of the greater of (i) its net income for the most recent
fiscal year, or (ii) the average of its net income after dividends for the
most recent fiscal year and not more than two of the immediately preceding
fiscal years, if applicable. As a result of this limitation, the Bank cannot
pay a dividend in excess of $700,000 without the approval of the
Administrator.
Management is not aware of any other trends, events, uncertainties, or
current recommendations by regulatory authorities that will have or that are
reasonably likely to have a material effect on the Company's liquidity,
capital resources, or other operations.
7) Earnings per Share
------------------
Earnings per share has been computed based on net income and the weighted
average number of shares outstanding, or 2,670,386 and 2,627,126 shares, for
the three and nine months ended March 31, 1997, respectively. For purposes of
this computation, the number of shares purchased by the Bank's employee stock
ownership plan which have not been committed to be released to participant
accounts are not assumed to be outstanding.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- -------
RESULTS OF OPERATIONS
COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND
1996
Summary
- -------
The Company recorded a net loss of $876,000 for the nine months ended March
31,1997. Earnings were primarily adversely affected by three non-recurring
items which occurred in the previous two quarters of the fiscal year, including
expenses associated with payment of the special dividend in December 1996, the
FDIC special assessment to recapitalize the Savings Association Insurance Fund
("SAIF"), and the charge-off of unsecured loans to a single borrower. Without
these non-recurring items, net income for the nine month period would have been
approximately $1,187,000 or $0.46 per share compared to earnings of $1,214,000
for the same period last year.
Net Interest Income
- -------------------
Net interest income, the Company's primary source of earnings, continued to be
strong for the nine month period ended March 31, 1997. The table below shows
that tax-equivalent net interest income increased by $305,000 to $3,968,000 for
the nine months ended March 31, 1997 from $3,663,000 for the same period last
year. Net interest income is analyzed on a tax-equivalent basis to adjust for
the nontaxable status of income earned on certain investments such as municipal
bonds.
The increase in net interest income was primarily due to a higher level of
average net interest-earning assets. Average investment securities increased by
$2.9 million and average loans increased by $8.0 million over the same period
last year. Growth in interest-earning assets was funded by proceeds of the
stock conversion and growth in advances. Interest rate spread (on a tax-
equivalent basis) decreased to 3.13% for the nine months ended March 31, 1997
from 3.20% for the same period last year primarily due to a decrease in the
yield on interest-earning assets. Net interest margin (on a tax-equivalent
basis) increased to 4.33% for the nine months ended March 31, 1997 from 4.28%
for the nine months ended March 31, 1996.
10
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended March 31,
------------------------------------------------------------------------------------------------------
1997 1996
---------------- ----------------
Average Average
Average Yield/ Average Yield/
Balance Interest Rate (1) Balance Interest Rate (1)
-------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Interest-bearing deposits $ 2,601 $ 84 4.30% $ 5,431 $ 209 5.12%
FHLB common stock 886 48 7.22 787 43 7.27
Taxable investment
securities 15,235 769 6.73 14,350 710 6.60
Tax-exempt investment
securities (2) 8,271 497 8.02 6,303 341 7.22
Loans receivable 95,167 5,987 8.39 87,191 5,708 8.73
-------- -------- ----- -------- ------ ----
Total interest-earning
assets 122,160 7,385 8.06 114,062 7,011 8.19
-------- ----- ------ ----
Non-interest-earning assets 3,217 2,575
-------- --------
Total $125,377 $116,637
======== ========
Liabilities and
Stockholders' Equity:
Interest-bearing
liabilities:
Deposit accounts $ 75,700 2,665 4.69 $ 76,614 2,771 4.81
Borrowings 16,725 752 6.00 12,629 577 6.09
-------- -------- ------- --------- ------ ----
Total interest-bearing
liabilities 92,425 3,417 4.93 89,243 3,348 4.99
-------- ------- --------- ------ ----
Non-interest-bearing 5,214 3,042
liabilities
Stockholders' equity 27,738 24,352
-------- ---------
Total $125,377 $116,637
======== =========
Net interest income and
interest rate spread $ 3,968 3.13% $ 3,663 3.20%
======== =======
Net interest-earning
assets and net interest
margin $ 29,735 4.33% $ 24,819 4.28%
======== ========
Ratio of interest-earning
assets to
interest-bearing
liabilities 132.17% 127.81%
</TABLE>
(1) All information presented in this column is annualized with the exception of
the ratio of interest-earning assets to interest bearing liabilities.
(2) Interest earned on tax-exempt investment securities has been adjusted to a
tax-equivalent basis using the applicable federal and state rates of 34% and
7.75%, respectively, and reduced by the nondeductible portion of interest
expense.
Provision for Loan Losses
- -------------------------
The provision for loan losses for the nine months ended March 31, 1997 totaled
$638,000 compared to $75,000 for the same period last year. This unusually high
provision resulted primarily from the charge off of approximately $510,000 of
loans to a single borrower in December 1996. No further charge offs related to
this borrower are anticipated at this time. The Company received approximately
$41,000 of recoveries from this single borrower during the quarter ended March
31, 1997. The provision for loan losses is based on management's evaluation of
the loan portfolio as discussed under "Financial Condition" below.
Other Income
- ------------
Other income totaled $153,000 for the nine months ended March 31, 1997 compared
to $245,000 for the same period of fiscal 1996. The decrease is primarily
attributable to $132,000 of net losses recorded in the first two quarters of the
fiscal year on investment securities sold to fund the special dividend. No such
losses were recorded during the same period last year. These losses were
partially offset by a $19,000 increase in customer service and other fees
associated with the July 1, 1996
11
<PAGE>
implementation of a new fee schedule for deposit-related services; and a $28,000
increase in lower-of-cost or market net recoveries on loans held-for-sale.
Other Expenses
- --------------
Other expenses totaled $4,092,000 for the nine months ended March 31, 1997
compared to $1,837,000 for the same period last year. The significant increase
was primarily attributable to two large non-recurring expenses. For the nine
months ended March 31, 1997, the Company recorded $1,650,000 of ESOP-related
compensation expense, primarily associated with the release and allocation of
approximately 126,000 shares of common stock of the Parent to participants of
the ESOP during the second quarter of fiscal 1997. The special dividend paid
on the Parent's stock on December 6, 1996 and management's decision to use the
special dividends paid on the unallocated shares of the Parent's common stock
held by the ESOP to pre-pay the ESOP loan from the Parent to the ESOP caused a
significant portion of that share release, approximately 103,000 shares. As a
result, approximately $1,428,000 of the nine-month ESOP-related compensation
expense is deemed to be non-recurring in nature. Management believes that
acceleration of ESOP-related compensation expense will contribute to enhanced
earnings for future periods.
The second non-recurring other expense is the $487,000 one-time FDIC special
assessment for the recapitalization of the SAIF. The assessment was levied on
all depository institutions with SAIF-insured deposits and was calculated as
65.7 basis points on assessable deposits as of March 31, 1995.
Without the effect of the non-recurring SAIF assessment and the non-recurring
portion of ESOP-related compensation expense, other expenses would have totaled
$2,177,000, a $340,000 increase over prior year. Compensation and fringe
benefits, excluding non-recurring items, increased by $300,000 to $1,334,000
compared to $1,034,000 for the nine months ended March 31, 1996, primarily
related to the ESOP and the MRP. The ESOP, which was established in conjunction
with the Conversion, provides a higher level of retirement benefits to employees
than the previous retirement plan. The recurring portion of ESOP-related
compensation expense for the nine months ended March 31, 1997 totaled $222,000
compared to $105,000 recorded for the same period last year. Also contributing
to the increase in compensation expense was $161,000 of amortization of deferred
compensation associated with the MRP implemented August 29, 1996.
The remaining increase in other expenses was due to increases in professional
fees and other expenses. Included in the $76,000 increase in "Other" are
increases in marketing expenses, shareholder reporting expenses, and franchise
tax expenses. These increased expenses are mitigated to a degree by a $72,000
reduction in FDIC-insurance premiums to $58,000 for the nine months ended March
31, 1997 from $130,000 for the same period last year. The Bank received a
$45,000 refund of premiums paid for the quarter ended December 31, 1996 and
deposit insurance premiums have decreased starting with the March 31, 1997
quarter. The reduced level of FDIC-insurance premiums is anticipated to
continue into the future.
Income Tax Expense
- ------------------
The Company recorded income tax expense of $73,000 for the nine months ended
March 31, 1997, compared to $649,000 for the same period last year. The
decrease in tax expense reflects the pre-tax loss and the fact that a
significant portion of the ESOP-related compensation expense is not tax-
deductible.
12
<PAGE>
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND 1996
Summary
- -------
For the quarter ended March 31, 1997, the Company recorded net income of
$372,000, compared to $503,000 for the same quarter last year. The $131,000
decrease in earnings is primarily attributable to a decrease in net interest
income.
Net Interest Income
- -------------------
As shown in the table below, tax-equivalent net interest income decreased
$237,000 to $1,171,000 from $1,408,000 for the quarter ended March 31, 1996.
Net interest income is analyzed on a tax-equivalent basis to adjust for the
nontaxable status of income earned on certain investments such as municipal
bonds.
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------------------------------------------------------------------------
1997 1996
------------- ------------
Average Average
Average Yield/ Average Yield/
Balance Interest Rate (1) Balance Interest Rate(1)
------- -------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Interest-bearing deposits $ 1,666 $ 17 4.14% $ 2,689 $ 41 6.13%
FHLB common stock 897 16 7.23 790 14 7.13
Taxable investment
securities 12,133 203 6.69 18,481 308 6.67
Tax-exempt investment
securities (2) 3,983 80 8.08 10,614 200 7.55
Loans receivable 96,657 2,013 8.35 87,818 1,878 8.56
-------- -------- ------- -------- ------ ----
Total interest-earning
assets 115,336 2,329 8.10 120,392 2,441 8.12
-------- ------- ------ ----
Non-interest-earning assets 3,638 2,980
-------- --------
Total $118,974 $123,372
======== ========
Liabilities and
Stockholders' Equity:
Interest-bearing
liabilities:
Deposit accounts $ 79,217 914 4.68 $ 70,387 852 4.87
Borrowings 16,713 244 5.84 11,912 181 6.08
-------- -------- ------- -------- ------ ----
Total interest-bearing
liabilities 95,930 1,158 4.88 82,299 1,033 5.04
-------- ------- ------ ----
Non-interest-bearing 3,116 3,722
liabilities
Stockholders' equity 19,928 37,351
-------- --------
Total $118,974 $123,372
======== ========
Net interest income and
interest rate spread $ 1,171 3.22% $ 1,408 3.08%
======== =======
Net interest-earning
assets and net interest
margin $ 19,406 4.06% $38,093 4.68%
======== =======
Ratio of interest-earning
assets to
interest-bearing
liabilities 120.23% 146.29%
</TABLE>
(1) All information presented in this column is annualized with the exception of
the ratio of interest-earning assets to interest bearing liabilities.
(2) Interest earned on tax-exempt investment securities has been adjusted to a
tax-equivalent basis using the applicable federal and state rates of 34% and
7.75%, respectively, and reduced by the nondeductible portion of interest
expense.
13
<PAGE>
The decrease in net interest income is primarily due to a lower level of average
net interest-earning assets during the third quarter of fiscal 1997 compared to
the same quarter last year. The decline in interest-earning assets is due to
the sale of investment securities in order to pay the special dividend during
the second quarter of the year. Average investment securities decreased by
$13.0 million while average loans increased by $8.8 million over the same
quarter last year. Interest rate spread (on a tax-equivalent basis) increased
to 3.22% for the quarter ended March 31, 1997 from 3.08% for the same quarter
last year due to a decline in the cost of interest-bearing liabilities. Despite
the increase in interest rate spread, net interest margin (on a tax-equivalent
basis) decreased to 4.06% for the quarter ended March 31, 1997 from 4.68% for
the quarter ended March 31, 1996. Net interest margin for the third quarter of
fiscal 1996 reflects return on conversion proceeds which were invested in loans
and investment securities while net interest margin for the quarter ending March
31, 1997 reflects the liquidation of those interest-earning assets to fund the
special dividend paid on December 6, 1996.
Provision for Loan Losses
- -------------------------
The provision for loan losses for the three months ended March 31, 1997 totaled
$20,000 compared to $21,000 for the same period last year. The provision for
loan losses is based on management's evaluation of the loan portfolio as
discussed under "Financial Condition".
Other Income
- ------------
Other income totaled $70,000 for the third quarter of fiscal 1997 compared to
$79,000 for the same period of fiscal 1996. Included in other income for the
current quarter is an $18,000 write-down of mortgage loans held for sale to
record them at the lower-of-cost or market. This write-down is mitigated by an
increase in customer service and other fees of $8,000 from the prior year
quarter resulting from the implementation of a new deposit-related fee structure
in July 1996.
Other Expenses
- --------------
Other expenses totaled $617,000 for the three months ended March 31, 1997
compared to $642,000 for the same period last year. The decrease is largely
attributable to a $30,000 decrease in FDIC insurance premiums during the quarter
which is a direct result of the recapitalization of the SAIF. The lower level of
FDIC-insurance premiums is anticipated to continue in future quarters. These
decreased expenses were mitigated to a degree by a $26,000 increase in
compensation and fringe benefits compared to the same quarter last year. This
increase is due to $55,000 of compensation expense related to the MRP, partially
offset by a decrease in ESOP-related compensation expense of $18,000 from the
same period last year due to fewer unallocated shares in the plan after release
and allocation in December 1996.
Income Tax Expense
- ------------------
The Company recorded an income tax expense of $201,000 for the quarter ended
March 31, 1997 for an effective tax rate of 35% compared to an effective tax
rate of 33% for the prior year quarter.
14
<PAGE>
FINANCIAL CONDITION
CHANGES IN FINANCIAL CONDITION
- ------------------------------
Total assets decreased to $118.5 million at March 31, 1997 from $128.7 million
at June 30, 1996. While the sale of investment securities to fund the special
dividend led to a $14.9 million decrease in investments, loans increased by $4.9
million. Loan growth was funded largely with deposits which increased by $8.6
million to $82 million at March 31, 1997 from $73.4 million at June 30, 1996.
Stockholders' equity decreased from $37.1 million at June 30, 1996 to $20.1
million at March 31, 1997, reflecting payment of the $7.00 special dividend on
December 6, 1996. The decline in unearned ESOP shares primarily reflects the
release and allocation of approximately 126,000 shares of Company stock to ESOP
participants as of December 31, 1996 discussed previously in this report. On
August 29, 1996, restricted stock awards of 105,800 shares were made to
directors, officers, and employees under the Bank's management recognition plan.
Such shares were issued from authorized but unissued shares at no cost to
recipients. As discussed in note 5 of this report, during the third quarter of
fiscal 1997, three MRP participants forfeited 14,914 restricted, non-vested
shares of the Company's stock and $107,679 of dividends previously paid to the
participants on those restricted shares. The Bank allocated 13,500 of the
forfeited restricted shares to new MRP participants during the quarter ending
March 31, 1997, leaving 1,414 restricted shares unallocated under the MRP. The
dividends refunded to the Bank have been reflected as an addition to equity in
the same ratio the dividends were originally paid to the former participants.
MRP shares are expected to be fully vested at the end of five years from the
date of issuance.
ASSET QUALITY
- -------------
Nonperforming Assets
- --------------------
Nonperforming assets include nonaccrual loans, restructured loans and real
estate owned. The following table presents information on nonperforming assets
and loans contractually past due but still accruing at March 31, 1997 and June
30, 1996
March 31, June 30,
1997 1996
--------- --------
(in thousands)
Total nonaccrual loans $ 793 $ 758
Total restructured loans - -
-------- --------
Total nonperforming loans 793 758
-------- --------
Real estate owned - -
-------- --------
Total nonperforming assets $ 793 $ 758
======== ========
Accruing loans, delinquent 90 days or more $ 291 $ 302
======== ========
Nonperforming loans to total loans 0.83% 0.83%
Nonperforming assets to total assets 0.67% 0.59%
Total assets $118,519 $128,711
Total loans, net $ 96,086 $ 91,187
15
<PAGE>
There were no significant changes in nonperforming assets outstanding from June
30, 1996 to March 31, 1997. Management has reviewed the collateral for
nonperforming loans and believes that collateral values related to such loans
exceed the loan balances. Management has included this review among the factors
considered in the evaluation of the allowance for possible loan losses.
At March 31, 1997, the recorded investment in loans that are considered to be
impaired under SFAS No. 114 increased to $949,000 (comprised of three loans)
from $826,000 (comprised of two loans) at June 30, 1996. Impaired loans
totaling $581,000 and $457,000 were in non-accrual status at March 31, 1997 and
June 30, 1996, respectively. There was no related allowance for credit losses
associated with these loans as determined in accordance with SFAS No. 114.
Approximately $142,000 and $124,000 of the Company's general allowance for loan
losses relates to these impaired loans at March 31, 1997 and June 30, 1996,
respectively.
Provision and Allowance for Loan Losses
- ---------------------------------------
The following table summarizes the activity in the allowance for loan losses for
the three and nine months ended March 31, 1997 and 1996, respectively.
Three months ended Nine months ended
March 31, March 31,
--------- ---------
1997 1996 1997 1996
------ ------ ------ ------
Balance at the beginning of period $ 715 $ 570 $ 608 $ 515
Provision for loan losses 20 21 638 75
Recoveries 41 - 42 1
Loans charged off ( 4) - (516) -
----- ----- ----- -----
Balance at the end of period $ 772 $ 591 $ 772 $ 591
----- ----- ----- -----
As previously discussed, the Company charged off $510,000 of unsecured loans to
a single borrower during the quarter ended December 31, 1996. Management
restructured the charged off loans into a loan secured by real estate and
believes prospects for collection of these loans to be good. Future
collections, if any, would be considered in determining the magnitude of future
provisions for loan losses. No further charge offs related to this borrower are
anticipated at this time. Management and the board of directors believe that
deficiencies associated with this type of lending are limited to this one
relationship, and have taken appropriate steps to prevent similar occurrences in
the future.
At March 31, 1997, the allowance for loan losses was 0.80% of total loans,
compared to 0.66% of total loans at June 30, 1996 and 0.66% of total loans at
March 31, 1996.
The levels of the provision and allowance for loan losses are based on
management's ongoing evaluation of the risk characteristics of the loan
portfolio considering current economic conditions, financial condition of
borrowers, growth and composition of the loan portfolio, collateral values, the
relationship of the allowance for loan losses to outstanding loans, the level of
nonperforming loans that have been identified as potential problems, past and
expected loss experience, results of the most recent regulatory examinations,
and other factors deemed relevant by management. Management actively maintains a
current loan watch list and knows of no other loans which are material and (1)
represent or result from trends or uncertainties which management reasonably
expects will materially impact future operating results, liquidity, or capital
resources, or (2) represent material credits about
16
<PAGE>
which management has serious doubts as to the ability of such borrowers to
comply with the loan repayment terms. Based on management's evaluation of the
loan portfolio, as described above, the Company recorded a $638,000 provision
for loan losses for the nine months ended March 31, 1997 compared to a $75,000
provision for the same period last year.
LIQUIDITY AND INTEREST RATE RISK MANAGEMENT
- -------------------------------------------
Liquidity is the ability to raise funds or convert assets to cash in order to
meet customer and operating needs. The Company's primary sources of liquidity
are its portfolio of investment securities available-for-sale, principal and
interest payments on loans and mortgage-backed securities, interest income from
investment securities, maturities of investment securities held-to-maturity,
increases in deposits, and advances from the FHLB of Atlanta. At March 31,
1997, the Bank had $9.5 million of credit available from the FHLB which would be
collateralized by a blanket lien on qualifying loans secured by first mortgages
on 1-4 family residences. Additional amounts may be made available under this
blanket floating lien or by using investment securities as collateral.
Management believes that it will have sufficient funds available to meet its
anticipated future loan commitments as well as other liquidity needs.
Interest rate risk is the sensitivity of interest income and interest expense to
changes in interest rates. Management structures the Company's assets and
liabilities in an attempt to protect net interest income from large fluctuations
associated with changes in interest rates. At March 31, 1997, the Company had
a cumulative one year liability-sensitive gap position of $8.0 million or 7.04%
of interest-earning assets. A liability-sensitive gap position generally
indicates that net interest income would increase in a declining rate
environment and would experience downward pressure in a rising rate environment.
The Company had a cumulative one year liability-sensitive gap position of $6.9
million or 5.71% of interest-earning assets at December 31, 1996 and cumulative
one year asset-sensitive gap position of $3.7 million or 2.95% of interest-
earning assets at June 30, 1996. The liability-sensitive gap position is
primarily attributable to the growth of customer deposits with maturities of
less than one year. The Company will continue to actively manage its balance
sheet in order protect net interest income from changes in interest rates.
It should be noted that these measures reflect the interest-sensitivity of the
balance sheet as of a specific date and are not necessarily indicative of future
results. Because of this and other limitations, management also monitors
interest rate sensitivity through the use of a model which estimates the change
in net portfolio value and net interest income in response to a range of assumed
changes in market interest rates. Based on interest sensitivity measures as of
March 31, 1997, management believes that its interest rate risk is at an
acceptable level.
CAPITAL RESOURCES
- -----------------
The Parent is regulated by the Board of Governors of the Federal Reserve System
("FRB") and is subject to securities registration and public reporting
regulations of the Securities and Exchange Commission. The Bank is regulated by
the Federal Deposit Insurance Corporation ("FDIC") and the Administrator,
Savings Institutions Division, North Carolina Department of Commerce, (the
"Administrator"). The Bank is subject to the capital requirements of the FDIC
and the Administrator. The FDIC requires the Bank to maintain minimum ratios of
Tier 1 capital to total risk-weighted assets and total capital to risk-weighted
assets of 4% and 8%, respectively. Tier 1 capital consists of total
17
<PAGE>
stockholders' equity calculated in accordance with generally accepted accounting
principles less intangible assets, and total capital is comprised of Tier 1
capital plus certain adjustments, the only one applicable to the Bank is the
allowance for possible loan losses. Risk-weighted assets refer to the on- and
off-balance sheet exposures of the Bank adjusted for their relative risk levels
using formulas set forth in FDIC regulations. The Bank is also subject to a FDIC
leverage capital requirement, which calls for a minimum ratio of Tier 1 capital
(as defined above) to quarterly average total assets of 3% to 5%, depending on
the institution's composite ratings as determined by its regulators. The
Administrator requires a net worth equal to at least 5% of total assets.
At March 31, 1997, the Bank was in compliance with all of the aforementioned
capital requirements.
CURRENT ACCOUNTING ISSUES
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". The statement defines a fair value method of accounting for an
employee stock option or similar equity instrument and encourages all entities
to adopt that method of accounting for all of their employee stock compensation
plans. It also allows an entity to continue to measure compensation cost for
those plans using the intrinsic value based method of accounting prescribed in
Accounting Principles Board Opinion Number 25 ("APB No. 25"), "Accounting for
Stock Issued to Employees". SFAS No. 123 requires that an employers' financial
statements include certain disclosures about stock-based compensation
arrangements regardless of the method used to account for them. Entities
electing to remain with the accounting in APB No. 25 must make pro forma
disclosures of net income and, if presented, earnings per share, as if the fair
value based method of accounting defined in SFAS No. 123 had been applied. The
disclosure requirements of the statement are effective for financial statements
for fiscal years beginning after December 15, 1995, or for an earlier fiscal
year for which this statement is initially adopted for recognizing compensation
cost. Pro forma disclosures required for entities that elect to continue to
measure compensation cost using APB No. 25 must include the effects of all
awards granted in fiscal years that begin after December 15, 1994. Management
intends to measure compensation cost using the provisions of APB No. 25;
therefore, management anticipates that the adoption of the statement should have
no material impact on its consolidated financial statements.
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" was issued in June 1996. This statement
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities based on consistent
application of a financial-components approach that focuses on control. It
distinguishes transfers of financial assets that are sales from transfers that
are secured borrowings. Under the financial-components approach, after a
transfer of financial assets, an entity recognizes all financial and servicing
assets it controls and liabilities it has incurred and derecognizes financial
assets it no longer controls and liabilities that have been extinguished. The
financial-components approach focuses on the assets and liabilities that exist
after the transfer. If a transfer does not meet the criteria for a sale, the
transfer is accounted for as a secured borrowing with pledge of collateral.
This statement is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996, and is to be
applied prospectively. In December 1996, the FASB issued SFAS No. 127,
"Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125,
an amendment of FASB Statement No. 125." For repurchase agreements, dollar-
roll, securities lending and similar transactions, SFAS No. 127 defers the
effective date of SFAS No. 125 to transfers occurring after December 31, 1997.
Earlier or retroactive adoption of either statement is not permitted.
Management
18
<PAGE>
anticipates that the adoption of these statements should have no material impact
on its consolidated financial statements.
SFAS No. 128, "Earnings per Share", established standards for computing and
presenting earnings per share ("EPS") and applies to entities with publicly held
common stock or potential common stock. This statement simplifies the standards
for computing EPS previously found in APB Opinion No. 15, "Earnings per Share",
and makes them comparable to international EPS standards. This Statement
replaces the presentation of primary EPS with a presentation of basic EPS. It
also requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. This statement
provides specific guidance for the computation of basic and diluted EPS and
supersedes Opinion 15, AICPA Accounting Interpretation 1-102 of Opinion 15, and
other related accounting pronouncements. This statement is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods, with earlier application not permitted. Additionally,
once adopted, restatement of all prior-period EPS data presented is required.
19
<PAGE>
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1. LEGAL PROCEEDINGS
None
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
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
20
<PAGE>
SIGNATURES
-----------
Under 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
Date: May 6, 1997 By: /s/ D. Tyson Clayton
---------------------
President
Date: May 6, 1997 By: /s/ Eric J. Schuppenhauer
-------------------------
Vice President and principal
financial officer
21
<PAGE>
SIGNATURES
----------
Under 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
Date: May 6, 1997 By: ______________________________
President
Date: May 6, 1997 By: ______________________________
Vice President and principal
financial officer
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1997
<PERIOD-START> JAN-01-1997 JUL-01-1996
<PERIOD-END> MAR-31-1997 MAR-31-1997
<CASH> 933 0
<INT-BEARING-DEPOSITS> 1,491 0
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 12,197 0
<INVESTMENTS-CARRYING> 3,506 0
<INVESTMENTS-MARKET> 3,522 0
<LOANS> 96,086 0
<ALLOWANCE> 772 0
<TOTAL-ASSETS> 118,519 0
<DEPOSITS> 81,920 0
<SHORT-TERM> 15,500 0
<LIABILITIES-OTHER> 999 0
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 5,278 0
<OTHER-SE> 14,822 0
<TOTAL-LIABILITIES-AND-EQUITY> 118,519 0
<INTEREST-LOAN> 2,013 5,987
<INTEREST-INVEST> 268 1,120
<INTEREST-OTHER> 17 84
<INTEREST-TOTAL> 2,298 7,191
<INTEREST-DEPOSIT> 914 2,665
<INTEREST-EXPENSE> 1,158 3,417
<INTEREST-INCOME-NET> 1,140 3,774
<LOAN-LOSSES> 20 638
<SECURITIES-GAINS> 0 (132)
<EXPENSE-OTHER> 617 4,092
<INCOME-PRETAX> 573 (803)
<INCOME-PRE-EXTRAORDINARY> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 372 (876)
<EPS-PRIMARY> 0.14 (0.33)
<EPS-DILUTED> 0.14 (0.33)
<YIELD-ACTUAL> 4.06 4.33
<LOANS-NON> 793 0
<LOANS-PAST> 291 0
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 793 0
<ALLOWANCE-OPEN> 715 608
<CHARGE-OFFS> 4 516
<RECOVERIES> 41 42
<ALLOWANCE-CLOSE> 772 772
<ALLOWANCE-DOMESTIC> 0 0
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
