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
December 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
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1 - Financial Statements
<TABLE>
<CAPTION>
PIEDMONT BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
1997 1997
(unaudited) *
--------- ---------
(in thousands, except shares)
<S> <C> <C>
Assets
Cash ......................................................... $ 770 $ 879
Interest-bearing deposits in other financial institutions .... 2,085 3,766
Investment securities:
Available-for-sale ........................................ 12,138 10,866
Held-to-maturity .......................................... 3,322 3,341
Loans receivable (net of allowance for loan losses of $879 and
$796 at December 31, 1997 and June 30, 1997, respectively) 107,225 100,173
Federal Home Loan Bank stock, at cost ........................ 1,080 920
Premises and equipment ....................................... 1,230 1,205
Real estate owned ............................................ 522 --
Prepaid expenses and other assets ............................ 1,795 1,611
--------- ---------
Total assets ....................................... $ 130,167 $ 122,761
========= =========
Liabilities and Stockholders' Equity
Liabilities
Deposits :
Demand, non-interest bearing .............................. 2,149 2,074
Savings, NOW and MMDA ..................................... 30,290 28,594
Certificates of Deposit ................................... 53,932 54,192
--------- ---------
86,371 84,860
Advances from the Federal Home Loan Bank ..................... 21,600 16,500
Accrued expenses and other liabilities ....................... 1,137 985
--------- ---------
Total liabilities ....................................... 109,108 102,345
--------- ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PIEDMONT BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(consolidated)
December 31, June 30,
1997 1997
(unaudited) *
--------- ---------
(in thousands, except shares)
<S> <C> <C>
Stockholders' Equity
Preferred stock, no par value, 5,000,000 shares authorized;
none issued ............................................... -- --
Common stock, no par value, 20,000,000 shares authorized;
2,750,800 shares issued and outstanding ................... 9,133 9,143
Unearned ESOP shares ......................................... (798) (933)
Unamortized deferred compensation ............................ (1,105) (1,269)
Unallocated restricted stock ................................. (51) (21)
Retained earnings, substantially restricted (note 6) ......... 13,828 13,580
Unrealized holding losses on available-for-sale securities ... 52 (84)
--------- ---------
Total stockholders' equity ............................. 21,059 20,416
--------- ---------
Total liabilities and stockholders' equity ......... $ 130,167 $ 122,761
========= =========
</TABLE>
* Derived from audited financial statements
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
PIEDMONT BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
------------------- -------------------
1997 1996 1997 1996
------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income:
Interest on loans .......................................... $ 2,245 $ 2,004 $ 4,432 $ 3,974
Interest on deposits in other financial institutions ....... 14 51 30 67
Interest and dividends on investment securities:
Taxable ................................................. 208 275 411 598
Non-taxable ............................................. 49 100 97 254
------- ------- ------- -------
Total interest income ............................. 2,516 2,430 4,970 4,893
------- ------- ------- -------
Interest expense:
Interest on deposits ....................................... 992 892 1,985 1,751
Interest on borrowings ..................................... 301 256 567 508
------- ------- ------- -------
Total interest expense ............................ 1,293 1,148 2,552 2,259
------- ------- ------- -------
Net interest income ........................................... 1,223 1,282 2,418 2,634
Provision for loan losses ..................................... 24 597 48 618
------- ------- ------- -------
Net interest income after provision for loan losses 1,199 685 2,370 2,016
------- ------- ------- -------
Other income:
Customer service and other fees ............................ 52 48 104 99
Mortgage loan servicing fees ............................... 18 22 39 44
Gain (loss) on sale of investment securities ............... -- (106) 6 (132)
Lower-of-cost or market adjustment on loans held-for-sale .. 3 3 36 40
Other ...................................................... 23 14 48 32
------- ------- ------- -------
Total other income (expense) ...................... 96 (19) 233 83
------- ------- ------- -------
Other expenses:
Compensation and fringe benefits (note 5) .................. 402 1,972 825 2,388
SAIF recapitalization assessment ........................... -- -- -- 487
Data and items processing .................................. 61 61 116 123
Deposit insurance premiums ................................. 13 -- 26 45
Occupancy expense .......................................... 27 31 52 61
Furniture and equipment expense ............................ 26 32 51 62
Professional fees .......................................... 56 39 93 70
Other ...................................................... 145 126 238 239
------- ------- ------- -------
Total other expenses .............................. 730 2,261 1,401 3,475
------- ------- ------- -------
Income (loss) before income tax expense ........... 565 (1,595) 1,202 (1,376)
------- ------- ------- -------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PIEDMONT BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(continued)
Three Months Ended Six Months Ended
December 31, December 31,
------------------- -------------------
1997 1996 1997 1996
------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Income tax expense (benefit) .................................. 202 (164) 425 (128)
------- ------- ------- -------
Net income (loss) ........................... $ 363 $(1,431) $ 777 $(1,248)
======= ======= ======= =======
Net income (loss) per share - basic (notes 2 and 7) ........... $ 0.13 $ (0.54) $ 0.29 $ (0.48)
======= ======= ======= =======
Net income (loss) per share - diluted (notes 2 and 7) ......... $ 0.13 $ (0.54) $ 0.29 $ (0.48)
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
PIEDMONT BANCORP, INC. AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY (unaudited)
Unearned Unamortized Unallocated
Shares Common ESOP Deferred Restricted
Outstanding Stock Shares Compensation Stock
----------- ----- ------ ------------ -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1996 ......................... 2,645,000 $ 25,398 $ (2,552) -- $ --
Net income ................................. -- -- -- -- --
Issuance of restricted stock ............... 105,800 1,587 -- (1,587) --
Release of ESOP shares ..................... -- 105 1,498 -- --
Amortization of unearned compensation ...... -- -- -- 106 --
Cash dividends ............................. -- (18,233) -- -- --
Change in unrealized holding gains (losses),
net of income taxes ..................... -- -- -- -- --
--------- --------- --------- --------- -------
Balance at December 31, 1996 ..................... 2,750,800 $ 8,857 $ (1,054) $ (1,481) $ --
========= ========= ========= ========= =======
Balance at June 30, 1997 ......................... 2,750,800 $ 9,143 $ (933) $ (1,269) $ (21)
Net income ................................. -- -- -- -- --
Release of ESOP shares ..................... -- (24) 135 -- --
Amortization of unearned compensation ...... -- -- -- 123 --
Forfeiture of restricted stock ............. -- -- -- 136 (136)
Allocation of restricted stock ............. -- (11) -- (95) 106
Tax benefit of dividends on restricted stock -- (7) -- -- --
Cash dividends declared, net of
forfeited dividends on restricted stock . -- 32 -- -- --
Change in unrealized holding gains (losses),
net of income taxes ..................... -- -- -- -- --
--------- --------- --------- --------- ---------
Balance at December 31, 1997 ..................... 2,750,800 $ 9,133 $ (798) $ (1,105) $ (51)
========= ========= ========= ========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PIEDMONT BANCORP, INC. AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY (unaudited)
(continued)
Unrealized Total
Retained holding gain Stockholders'
Earnings (losses) Equity
-------- -------- ------
<S> <C> <C> <C>
Balance at June 30, 1996 ......................... $ 14,783 $ (579) $ 37,050
Net income ................................. (1,248) -- (1,248)
Issuance of restricted stock ............... -- -- --
Release of ESOP shares ..................... -- -- 1,603
Amortization of unearned compensation ...... -- -- 106
Cash dividends ............................. (135) -- (18,368)
Change in unrealized holding gains (losses),
net of income taxes ..................... -- 488 488
--------- --------- ---------
Balance at December 31, 1996 ..................... $ 13,400 $ (91) $ 19,631
========= ========= =========
Balance at June 30, 1997 ......................... $ 13,580 $ (84) $ 20,416
Net income ................................. 777 -- 777
Release of ESOP shares ..................... -- -- 111
Amortization of unearned compensation ...... -- -- 123
Forfeiture of restricted stock ............. -- -- --
Allocation of restricted stock ............. -- -- --
Tax benefit of dividends on restricted stock -- -- (7)
Cash dividends declared, net of
forfeited dividends on restricted stock . (529) -- (497)
Change in unrealized holding gains (losses),
net of income taxes ..................... -- 136 136
--------- --------- ---------
Balance at December 31, 1997 ..................... $ 13,828 $ 52 $ 21,059
========= ========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PIEDMONT BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Six Months Ended
December 31,
----------------------
1997 1996
------- --------
<S> <C> <C>
Operating activities:
Net income ....................................................... $ 777 $ (1,248)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ............................................... 49 47
Net amortization (accretion) ............................... 63 50
Provision for loan losses .................................. 48 618
Net (gain) loss on sale of investments
and mortgage-backed securities ......................... (6) 132
Loss on sale of fixed assets ............................... 4 --
Release of ESOP shares ..................................... 111 1,603
Compensation earned under MRP .............................. 123 106
Net decrease (increase) in mortgage loans held for sale .... -- 44
Increase in other assets ................................... (238) (13)
Increase (decrease) in other liabilities ................... 119 (22)
------- --------
Net cash provided by operating activities ............ 1,050 1,317
------- --------
Investing activities:
Net increase in loans held for investment ........................ (7,663) (5,385)
Principal collected on mortgage-backed securities ................ 229 348
Purchases of investment securities classified as
available-for-sale ..................................... (1,250) --
Purchases of mortgage-backed securities classified as
available-for-sale ..................................... (1,532) (1,576)
Proceeds from sales or calls of mortgage-backed securities
classified as available-for-sale ....................... 1,508 12,645
Proceeds from investment securities classified as
held-to-maturity called by issuer ...................... 10 3,847
Purchases of Federal Home Loan Bank stock ........................ (160) --
Purchases of premises and equipment .............................. (78) (13)
------- --------
Net cash provided by (used in) investing activities .. (8,936) 9,866
------- --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PIEDMONT BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(continued)
Six Months Ended
December 31,
----------------------
1997 1996
------- --------
<S> <C> <C>
Financing activities:
Net increase (decrease) in time deposits ......................... (260) 3,024
Net increase in other deposits ................................... 1,771 4,567
Proceeds from borrowings ......................................... 11,100 16,000
Repayments of borrowings ......................................... (6,000) (9,750)
Cash dividends paid to shareholders .............................. (515) (18,394)
------- --------
Net cash provided by (used in) financing activities .. 6,096 (4,553)
------- --------
Increase (decrease) in cash and cash equivalents ..... (1,790) 6,630
Cash and cash equivalents at beginning of period .................... 4,645 2,670
------- --------
Cash and cash equivalents at end of period .......................... $ 2,855 $ 9,300
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ...................................................... $ 2,550 $ 2,225
======== ========
Income taxes .................................................. $ 430 $ 330
======== ========
Supplemental disclosure of noncash transactions:
Unrealized gains (losses) on available-for-sale securities,
net of deferred taxes (benefit) of $33 and $313 .............. $ 136 $ 488
======== ========
Dividends declared but unpaid .................................... 267 267
======== ========
Transfer from loans receivable to real estate owned .............. 522 --
======== ========
</TABLE>
See accompanying notes to financial statements.
<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 periods 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 December 31, 1997 and for the three and six month periods
ended December 31, 1997 and December 31, 1996 in conformity with generally
accepted accounting principles. Operating results for the three and six month
periods ended December 31, 1997 are not necessarily indicative of the results
that may be expected for the fiscal year ending June 30, 1998.
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")
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share". SFAS
128 establishes standards of 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 earnings per share
previously found in APB Opinion No. 15, "Earnings per Share", and makes them
comparable to international EPS standards. It replaces the presentation of
primary EPS with a presentation of basic EPS. It also requires dual
<PAGE>
PIEDMONT BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
4) Adoption of Statements of Financial Accounting Standards ("SFAS"), continued
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. SFAS 128 is effective for financial
statements issued for periods ending after December 15, 1997 and requires
restatement of all prior period EPS data presented. The Company adopted SFAS 128
at December 31, 1997 and made all the required disclosures.
In February 1997, the FASB issued Statement of Financial Accounting Standards
No. 129 ("SFAS 129"), "Disclosure of Information about Capital Structure". SFAS
129 establishes standards for disclosing information about an entity's capital
structure and is applicable to all entities. It contains no change in disclosure
requirements for entities that were previously subject to the requirements of
APB Opinion No. 10, "Omnibus Opinion - 1966", APB Opinion No. 15, "Earnings Per
Share", and Statement of Financial Accounting Standards No. 47, "Disclosure of
Long-Term Obligations". SFAS 129 is effective for financial statements for
periods ending after December 15, 1997. The Company plans to adopt SFAS 129 in
fiscal year 1998 with no impact on its consolidated financial statements.
5) Employee and Director Benefit Plans
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.
For the six month periods ended December 31, 1997 and 1996, ESOP-related
compensation expense totaled $111,000 and $1,603,000, respectively. For the
three month periods ended December 31, 1997 and 1996, ESOP-related compensation
expense totaled $50,000 and $1,496,000, respectively. Additionally, in December
of 1997 and 1996, 19,918 and 125,819 shares, respectively, were released to
individual participant accounts. The significant expense and release and
allocation of shares under the ESOP in the three and six month periods ending
December 31, 1996, as compared to the same period in 1997, was attributable 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. At December 31, 1997, a total of 148,837 shares have been
released and allocated to participants under the Plan and 62,763 shares remain
unallocated.
<PAGE>
PIEDMONT BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
5) Employee and Director Benefit Plans, continued
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 first six months
of fiscal 1998, six MRP participants forfeited a total of 11,011 restricted,
non-vested shares of the Company's stock and $36,000 of dividends previously
paid to the participants on those restricted shares. 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. The Bank allocated
9,000 of the forfeited restricted shares to new MRP participants during the
quarter ending December 31, 1997, leaving 3,425 restricted shares unallocated
under the MRP. Compensation expense of $123,000 and $106,000 was recorded during
the six month periods ended December 31, 1997 and 1996, respectively. During the
three months ended December 31, 1997 and 1996, compensation expense was recorded
of $56,000 and $79,000, 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 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 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.
<PAGE>
PIEDMONT BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
7) Earnings per Share
Basic net income per share is computed by dividing net income by the weighted
average number of shares of common stock outstanding for the period. Diluted net
income per share reflects the potential dilution that could occur if the
Company's dilutive stock options were exercised. The numerator of the basic net
income per share computation is the same as the numerator of the diluted net
income per share computaions for all periods presented A reconciliation of the
denominator of the basic net income EPS computation is as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
----------------------- ------------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Basic EPS denominator: weighted average
number of common shares outstanding 2,688,037 2,653,254 2,684,302 2,605,496
Dilutive effect of stock options 25,627 - 25,867 -
--------- --------- --------- ---------
Diluted EPS denominator 2,713,664 2,653,254 2,710,169 2,605,496
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Comparison of Results of Operations for the Six Months Ended December 31, 1997
and 1996
Summary
For the six months ended December 31, 1997, the Company recorded net income of
$777,000, or $0.29 basic and diluted earnings per share, compared to a net loss
of $1,248,000, or $0.48 basic and diluted loss per share for the six months
ended December 31, 1996. Earnings for the six months ended December 31, 1996
were adversely affected by a number of non-recurring items. For the six months
ended December 31, 1996, the Company recorded $1,603,000 of compensation expense
associated with the release and allocation of approximately 126,000 shares of
common stock of the Parent to participants of the ESOP. This release and
allocation of shares under the ESOP was mainly attributable to the $7.00 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. In addition, the Company recorded a provision for loan losses of
$618,000, which resulted primarily from the charge off of approximately $510,000
in loans to a single borrower. Losses of $132,000 were recognized on the sale of
investment securities, which were sold to fund the special dividend. Finally,
earnings for the year reflect the $487,000 FDIC special assessment to
recapitalize the Savings Association Insurance Fund ("SAIF") which the Company
recorded during the first quarter. Without these non-recurring items, net income
for the six month period would have been approximately $815,000 or $0.32 basic
and diluted per share.
Net Interest Income
As shown in the table on the following page, tax-equivalent net interest income
decreased $321,000 to $2,477,000 for the six months ended December 31, 1997 from
$2,798,000 for the same period in 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.
<PAGE>
Net Interest Income (continued)
<TABLE>
<CAPTION>
Six Months Ended December 31,
-----------------------------------------------------------------------
1997 1996
Average Yield/ Average Yield/
Balance Interest Rate(1) Balance Interest Rate(1)
---------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets: (dollars in thousands)
Interest-earning assets:
Interest-bearing deposits .......................... $ 1,634 $ 30 3.79 $ 3,069 $ 67 4.3%
FHLB common stock .................................. 991 36 7.27 880 32 7.21
Taxable investment securities ...................... 11,483 375 6.51 16,286 566 6.95
Tax-exempt investment securities (2) ............... 3,914 156 7.97 10,916 418 7.65
Loans receivable ................................... 104,831 4,432 8.46 94,422 3,974 8.40
-------- -------- ------ -------- -------- ------
Total interest-earning assets ........................ 122,853 5,029 8.19 125,573 5,057 8.01
-------- ------ --------
Non-interest-earning assets .......................... 3,182 3,006
Total ........................................... $126,035 $128,579
======== ========
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Deposit accounts ................................... 83,119 1,985 4.78 73,953 1,751 4.70
Borrowings ......................................... 18,950 567 5.98 16,731 508 6.07
-------- -------- ------ -------- -------- ------
Total interest-bearing liabilities ................... 102,069 2,552 5.00 90,684 2,259 4.95
Non-interest-bearing liabilities ..................... 3,055 6,251
Stockholders' equity ................................. 20,911 31,644
Total ........................................... $126,035 $128,579
======== ========
Net interest income and interest rate spread ......... $ 2,477 3.19 $ 2,798 3.06
======== ========
Net interest-earning assets and net interest ......... 20,784 4.03 $ 34,889 4.46
======== ========
Ratio of interest-earning assets to
interest-bearing liabilities 120.36 138.47
</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 7.50%, respectively, and reduced by the nondeductible protion of
interest expense.
<PAGE>
The decrease in net interest income is primarily due to a higher level of
average interest-bearing liabilities during the six months ended December 31,
1997 compared to the same period in 1996. Average total investment securities
declined $11.8 million while average loans receivable increased $10.4 million
over the same six month period last year. Interest rate spread (on a
tax-equivalent basis) increased to 3.19% for the six months ended December 31,
1997 from 3.06% for the same period in 1996 due primarily to a shift in the mix
toward higher earning assets, principally loans receivable. Despite the increase
in interest rate spread, net interest margin (on a tax-equivalent basis)
decreased to 4.03% for the six months ended December 31, 1997 from 4.46% for the
six months ended December 31, 1996. Net interest margin for the six months ended
December 31, 1996 reflects return on conversion proceeds that were invested in
loans and investment securities. Net interest margin for the six months ending
December 31, 1997 reflects the liquidation of investment securities to fund the
special dividend paid on December 6, 1996 that required increased liability
funding of asset growth.
Provision for Loan Losses
The provision for loan losses for the six months ended December 31, 1997 totaled
$48,000 compared to $618,000 for the same period last year. The unusually high
provision last year resulted primarily from the charge off of approximately
$510,000 of loans to a single borrower. There are no remaining outstanding loans
to this borrower. 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 $233,000 for the six months ended December 31, 1997
compared to $83,000 for the same period in 1996. The increase is primarily
attributable to $132,000 of net losses recorded in the six months ended December
31, 1996 on investment securities sold to fund the special dividend paid on
December 6, 1996. Another factor contributing to the increase is an increase of
$16,000 in other income. This increase is primarily attributable to a $25,000
increase in rental income associated with the rental of the Company's former
branch facility that commenced in December of 1996. Offsetting this increase is
a $10,000 decline in merchant income.
Other Expenses
Other expenses totaled $1,401,000 for the six months ended December 31, 1997
compared to $3,475,000 for the same period in 1996. The significant decline was
primarily attributable to two large non-recurring expenses that occurred in the
six months ended December 31, 1996. The Company recorded a total of $1,603,000
of compensation expense associated with the release and allocation of
approximately 126,000 shares of common stock to ESOP participants as of December
31, 1996. Such a large release and allocation of shares was made possible by the
$7.00 special dividend and management's decision to use the special dividends
paid on unallocated ESOP shares to prepay the ESOP loan. Approximately
$1,428,000 of compensation expense associated with the release and allocation of
approximately 103,000 shares was attributable to the special dividend and was
considered to be non-recurring.
The second non-recurring other expense that occurred in the six months ended
December 31, 1996 was 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
<PAGE>
on assessable deposits as of March 31, 1995. The Bank received a $45,000 refund
of premiums paid for the quarter ended December 31, 1996 and has seen a benefit
in the form of lower deposit insurance premiums during the six months ended
December 31, 1997 as compared to the same period in 1996.
Without the effect of the non-recurring SAIF assessment and the non-recurring
portion of ESOP-related compensation expense, other expenses would have totaled
$1,560,000 for the six months ended December 31, 1996.
Income Tax Expense
The Company recorded income tax expense of $425,000 for the six months ended
December 31, 1997 compared to an income tax benefit of $128,000 during the same
period in 1996. The increase is attributable to the increase in taxable income
in the six months ended December 31, 1997 compared to the same period in 1996.
Comparison of Results of Operations for the Three Months Ended December 31, 1997
and 1996
Summary
For the quarter ended December 31, 1997, the Company recorded net income of
$363,000, or $0.13 basic and diluted earnings per share, compared to a net loss
of $1,431,000, or $(0.54) basic and diluted loss per share, for the same quarter
last year. The net loss in the prior period is largely attributable to
non-recurring items. Compensation expense of $1,496,000 was recorded in
association with the release and allocation of approximately 126,000 shares of
common stock to ESOP participants discussed previously. In addition, a $597,000
provision for loan losses was recorded during the quarter which resulted
primarily from the charge off of approximately $510,000 in loans to a single
borrower. Finally, net losses of $106,000 were recognized on investments which
were sold to assist in funding the special dividend paid on December 6, 1996.
Without the effect of these non-recurring items, net income for the quarter
would have totaled $319,000 or $0.12 basic and diluted earnings per share.
Net Interest Income
As shown in the table on the following page, tax-equivalent net interest income
decreased $95,000 to $1,252,000 for the three months ended December 31, 1997
from $1,347,000 for the same period in 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.
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended December 31,
-----------------------------------------------------------------------
1997 1996
Average Yield/ Average Yield/
Balance Interest Rate(1) Balance Interest Rate(1)
---------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets: (dollars in thousands)
Interest-earning assets:
Interest-bearing deposits $ 1,678 $ 14 3.58% $ 4,495 $ 51 4.50%
FHLB common stock 1,044 19 7.28 862 15 6.90
Taxable investment securities 11,557 189 6.51 14,857 260 7.00
Tax-exempt investment securities (2) 3,929 78 7.94 8,649 165 7.63
Loans receivable 106,595 2,245 8.42 95,735 2,004 8.36
-------- ------ ---- --------- ------ ----
Total interest-earning assets 124,803 2,545 8.16 124,598 2,495 8.00
------ ---- ------
Non-interest-earning assets 3,319 2,737
-------- ---------
Total $128,122 $ 127,335
======== =========
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Deposit accounts 83,562 992 4.75 75,675 892 4.68
Borrowings 20,326 301 5.92 16,572 256 6.18
-------- ------ ---- --------- ------ ----
Total interest-bearing liabilities 103,888 1,293 4.98 92,247 1,148 4.95
-------- ------ ---- --------- ------ ----
Non-interest-bearing liabilities 3,189 9,262
Stockholders' equity 21,045 25,826
-------- ---------
Total $128,122 $ 127,335
======== =========
Net interest income and interest rate spread $1,252 3.18% $ 1,347 3.05%
====== =======
Net interest-earning assets and net interest margin $ 20,915 4.01% $ 32,351 4.32%
======== ========
Ratio of interest-earning assets to
interest-bearing liabilities 120.13 135.07
</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 7.50%, respectively, and reduced by the nondeductible protion of
interest expense.
The decrease in net interest income is primarily due to a higher level of
average interest-bearing liabilities during the three months ended December 31,
1997 compared to the same three month period in 1996. Average total investment
securities declined $8.0 million while average loans receivable increased $10.8
million over the same three month period in 1996. Interest rate spread (on a
tax-equivalent basis) increased to 3.18% for the three months ended December 31,
<PAGE>
1997 from 3.05% for the same three month period in 1996 due primarily to a shift
in the mix toward higher earning assets, principally loans receivable. Despite
the increase in interest rate spread, net interest margin (on a tax-equivalent
basis) decreased to 4.01% for the three months ended December 31, 1997 from
4.32% for the three months ended December 31, 1996. Net interest margin for the
three months ended December 31, 1996 reflects return on conversion proceeds that
were invested in loans and investments. Net interest margin for the three months
ending December 31, 1997 reflects the liquidation of investment securities to
fund the special dividend paid on December 6, 1996 that required increased
liability funding of asset growth.
Provision for Loan Losses
The provision for loan losses for the three months ended December 31, 1997
totaled $24,000 compared to $597,000 for the same period in 1996. The provision
for the three months ended December 31, 1996 resulted primarily from the charge
off of approximately $510,000 of loans to a single borrower. 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 $96,000 for the three months ended December 31, 1997
compared to $(19,000) for the same period in 1996. Included in other income for
the three months ended December 31, 1996 is a $106,000 net loss on investments
sold to assist in funding the special dividend. Without the effect of this
non-recurring loss other income would have totaled $87,000.
Other Expenses
Other expenses totaled $730,000 for the three months ended December 31, 1997
compared to $2,261,000 for the same period in 1996. The significant decrease was
largely attributable to the Company recording $1,496,000 of compensation expense
associated with the release and allocation of approximately 126,000 shares of
common stock to ESOP participants as of December 31, 1996. Such a large release
and allocation of shares was made possible by the $7.00 special dividend and
management's decision to use the special dividends paid on unallocated ESOP
shares to prepay the ESOP loan. Approximately $1,428,000 of compensation expense
associated with the release and allocation of approximately 103,000 shares was
attributable to the special dividend and therefore considered to be
non-recurring.
Without the effect of the non-recurring portion of ESOP-related compensation
expense, other expenses would have totaled $833,000 for the three months ended
December 31, 1997, or $103,000 greater than total other expenses for the three
months ended December 31, 1997. Compensation expense, excluding the
non-recurring portion, totaled $544,000 for the three months ended December 31,
1996, or $142,000 more than the same period 1997. The primary reasons for the
decrease in compensation expense are lower management and employee bonuses as
well as fewer employees in the three months ended December 31, 1997 as compared
to the same period in 1996. The decline in compensation expense was offset by
increases in deposit insurance premiums, professional fees and other expenses.
Income Tax Expense
The Company recorded income tax expense of $202,000 for the three months ended
December 31, 1997 compared to an income tax benefit of $164,000 during the same
period in 1996. The increase is attributable to the increase in taxable income
in the three months ended December 31, 1997 compared to the same period in 1996.
<PAGE>
Financial Condition
CHANGES IN FINANCIAL CONDITION
Total assets increased to $130.2 million at December 31, 1997 from $122.8
million at June 30, 1997. During the six months ended December 31, 1997, loans
grew by $7.0 million to $107.2 million at December 31, 1997. Loan growth was
funded largely with (1) advances from the Federal Home Loan Bank which increased
by $5.1 million to $21.6 million at December 31, 1997 from $16.5 million at June
30, 1997, and (2) deposits which increased by $1.5 million to $86.4 million at
December 31, 1997 from $84.9 million at June 30, 1997.
Stockholders' equity increased from $20.4 million at June 30, 1997 to $21.1
million at December 31, 1997. As discussed in note 5 to the financial statements
of this report, during the six months ended December 31, 1997, two MRP
participants forfeited 11,011 restricted, non-vested shares of the Company's
stock and $36,000 of dividends previously paid to the participants on those
restricted shares. 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. The Bank allocated 9,000 of the forfeited restricted shares
to new MRP participants during the quarter ending December 31, 1997, leaving
3,425 restricted shares unallocated under the MRP.
ASSET QUALITY
Nonperforming Assets and Risk Assets
Nonperforming assets include nonaccrual loans, restructured loans and real
estate owned. The table on the following page presents information on
nonperforming assets and loans contractually past due but still accruing at
December 31, 1997 and June 30, 1997.
<PAGE>
<TABLE>
<CAPTION>
December 31, June 30
1997 1997
-------- --------
<S> <C> <C>
(in thousands)
Total nonaccrual loans ......................... $ 422 $ 803
Total restructured loans ....................... -- --
-------- --------
Total nonperforming loans ................. 422 803
Real estate owned .............................. 522 --
Total nonperforming assets ..................... 944 803
Accruing loans, delinquent 90 days or more ..... 218 244
-------- --------
Total risk assets .............................. $ 1,162 $ 1,047
======== ========
Nonperforming loans to total loans ............. 0.39% 0.80%
Nonperforming assets to total assets ........... 0.73% 0.65%
Risk assets to total assets .................... 0.89% 0.85%
Allowance for loan losses to:
Total nonperforming assets .................. 0.93x 0.99x
Total risk assets ........................... 0.76x 0.76x
Total assets ................................... $130,167 $122,761
Total loans, net ............................... $107,225 $100,173
Allowance for loan losses ...................... 879 796
</TABLE>
The primary change in nonperforming assets from June 30, 1997 to December 31,
1997 was the foreclosure and transfer of property from loans receivable to real
estate owned. Management has reviewed the collateral for nonperforming assets
and believes that collateral values related to the loans and real estate owned
exceeds such balances. The real estate owned consists of one undeveloped tract
of land that was foreclosed by the Company during the three months ended
December 31, 1997. At December 31, 1997 and June 30, 1996, the recorded
investment in loans that are considered to be impaired under SFAS No. 114
(statement of Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan") was $113,000 and $580,000, respectively. Impaired
loans totaling $113,000 at December 31, 1997 and $458,000 at June 30, 1997 were
in non-accrual status. There was no related allowance for credit losses
associated with these loans as determined in accordance with SFAS No. 114,
however, approximately $17,000 and $87,000 of the general allowance for loan
losses is allocated to impaired loans at December 31, 1997 and June 30, 1997,
respectively. Management has included this review among the factors considered
in the evaluation of the allowance for possible loan losses.
<PAGE>
Provision and Allowance for Loan Losses
The following table summarizes the activity in the allowance for loan losses for
the three and six months ended December 31, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
------------------ -----------------
1997 1996 1997 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Balance at the beginning of period . $ 854 $ 629 $ 796 $ 608
Provision for loan losses .......... 24 597 48 618
Recoveries ......................... 5 1 39 1
Loans charged off .................. (4) (512) (4) (512)
----- ----- ----- -----
Balance at the end of period ....... $ 879 $ 715 $ 879 $ 715
</TABLE>
At December 31, 1997, the allowance for loan losses was 0.82% of total loans,
compared to 0.79% of total loans at June 30, 1997 and 0.74% of total loans at
December 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 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 $48,000 provision for loan losses for the six
months ended December 31, 1997 compared to a $618,000 provision for the same
period in 1996. The primary reason for the large decrease in the provision for
loan losses in 1997 compared to 1996 was a $597,000 provision for loan losses
that was recorded in 1996 which resulted primarily from the charge off of
approximately $510,000 in loans to a single borrower.
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 December 31,
1997, the Bank had $8.4 million of credit available from the FHLB which would be
collateralized by a blanket lien on qualifying loans secured by first mortgages
<PAGE>
LIQUIDITY AND INTEREST RATE RISK MANAGEMENT (continued)
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 December 31, 1997, the Company had
a one year liability-sensitive gap position of $4.4 million or 3.49% 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 asset-sensitive gap position of $5.6 million or 2.24% of
interest-earning assets at June 30, 1997. 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
December 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 I capital to total risk-weighted assets and total capital to risk-weighted
assets of 4% and 8%, respectively. Tier I capital consists of total
stockholders' equity calculated in accordance with generally accepted accounting
principles less intangible assets, and total capital is comprised of Tier I
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 I capital
(as defined above) to quarterly average total assets of 3% and a ratio of 5% to
be "well-capitalized". The Administrator requires a net worth equal to at least
5% of total assets.
At December 31, 1997, the Bank was in compliance with all of the aforementioned
capital requirements.
<PAGE>
As of December 31, 1997, the FDIC categorized the Bank as "well-capitalized"
under the regulatory framework for prompt corrective action. To be categorized
as "well-capitalized", the Bank must meet minimum ratios for total risk-based,
and Tier I leverage (the ratio of Tier I capital to average assets) of 10% and
5%, respectively. There have been no events or conditions since notification
that management believes have changed the Bank's category.
Current Accounting Issues
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130 ("SFAS 130"), "Reporting Comprehensive Income". SFAS 130 establishes
standards for reporting and displaying comprehensive income and its components
(revenues, expenses, gains, and losses) in a full set of general-purpose
financial statements. This Statement requires that an enterprise (a) classify
items of other comprehensive income by their nature in the financial statement
and (b) display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in-capital in the equity section of a
statement of financial position. SFAS 130 is effective for fiscal years
beginning after December 15, 1997. Reclassification of financial statements for
earlier periods provided for comparative purposes is required. The Company plans
to adopt SFAS 130 in fiscal year 1999 and will make the required disclosures
upon adoption.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and Related
Information". SFAS 131 establishes standards for the way that public businesses
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. This Statement is effective for financial
statements for periods beginning after December 15, 1997 and in the initial year
of application, comparative information for earlier years is to be restated. The
Company plans to adopt SFAS 131 in fiscal year 1999 without any significant
impact on its consolidated financial statements.
<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
(a) The Registrant's Annual Meeting of Shareholders was held on
November 12, 1997
(b) Not applicable
(c) 1. All the nominees for Director listed under the caption "Election
of Directors" in the Registrant's Proxy Statement dated October
3, 1997, were duly elected Directors of the Registrant. 27% of
the outstanding shares were voted. Of the 751,759 shares voted,
each director received at least 745,499 or 99% in favor, with
5,300 votes abstained.
2. The ratification of the selection of KPMG Peat Marwick LLP as
independent auditors for the Registrant as described under the
caption "Ratification or Selection of Independent Auditor" in the
Registrant's Proxy Statement dated October 3, 1997, was approved
by an affirmative vote of 746,459 shares or 99.3% of the shares
that voted, with 5,300 votes abstained.
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
<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: February 17, 1998 By: /s/ D. Tyson Clayton
--------------------
D. Tyson Clayton
President
Date: February 17, 1998 By: /s/ Thomas W. Wayne
------------------
Thomas W. Wayne
Vice President and principal
financial officer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 770
<INT-BEARING-DEPOSITS> 2,085
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 12,138
<INVESTMENTS-CARRYING> 3,322
<INVESTMENTS-MARKET> 0
<LOANS> 107,225
<ALLOWANCE> 879
<TOTAL-ASSETS> 130,167
<DEPOSITS> 86,371
<SHORT-TERM> 21,600
<LIABILITIES-OTHER> 1,137
<LONG-TERM> 0
0
0
<COMMON> 9,133
<OTHER-SE> 11,926
<TOTAL-LIABILITIES-AND-EQUITY> 130,167
<INTEREST-LOAN> 4,432
<INTEREST-INVEST> 508
<INTEREST-OTHER> 30
<INTEREST-TOTAL> 4,970
<INTEREST-DEPOSIT> 1,985
<INTEREST-EXPENSE> 2,592
<INTEREST-INCOME-NET> 2,418
<LOAN-LOSSES> 48
<SECURITIES-GAINS> 6
<EXPENSE-OTHER> 1,401
<INCOME-PRETAX> 1,202
<INCOME-PRE-EXTRAORDINARY> 1,202
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 777
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.29
<YIELD-ACTUAL> 4.03
<LOANS-NON> 422
<LOANS-PAST> 218
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 796
<CHARGE-OFFS> 4
<RECOVERIES> 39
<ALLOWANCE-CLOSE> 879
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
