<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number : 33-302132
TRI-STATE, 1ST BANK, INC.
-------------------------
(Exact Name of small business issuer as specified in its charter)
OHIO 34-1824708
- ---- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
16924 ST. CLAIR AVENUE
P.O. BOX 796
EAST LIVERPOOL, OHIO 43920
(330) 385-9200
(Address, including zip code, and
telephone number, including area
code of Principal Executive Officers)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirement for the past 90 days.
Yes X No
--- ---
As of November 12, 1997 there were 410,800 shares outstanding of the issuer's
class of common stock.
<PAGE>
TRI-STATE, 1ST BANK, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-QSB
Page
----
Part I Financial Information
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheet as of September 30, 1997
and December 31, 1996 3
Consolidated Statement of Income for the three
and nine months ended September 30, 1997 4
Consolidated Statement of Changes in Stockholders'
Equity for the nine months ended September 30, 1997 5
Consolidated Statement of Cash Flows for the nine
months ended September 30, 1997 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II Other Information 12
Signatures 13
<PAGE>
Tri-State 1st Bank, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---------- ----------
(In Thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 3,358 $ 3,778
Interest-bearing deposits with other banks 129 99
Federal funds sold 2,750 1,700
Securities available for sale 12,202 9,982
Investment securities (estimated market value of
$1,967 and $2,220) 1,936 2,205
Loans 26,597 24,051
Less allowance for loan losses 317 290
---------- ----------
Net loans 26,280 23,761
Premises and equipment 1,389 1,216
Accrued interest and other assets 611 434
---------- ----------
TOTAL ASSETS $ 48,655 $ 43,175
========== ==========
LIABILITIES
Deposits:
Noninterest-bearing demand $ 7,346 $ 5,991
Interest-bearing demand 8,137 8,028
Money market 5,058 4,789
Savings 9,180 7,877
Time 14,027 12,005
---------- ----------
Total deposits 43,748 38,690
Other borrowings 203 279
Accrued interest and other liabilities 253 170
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TOTAL LIABILITIES 44,204 39,139
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STOCKHOLDERS' EQUITY
Common stock, no par value; 1,000,000 shares authorized,
410,800 issued and outstanding 1,284 1,284
Surplus 1,611 1,611
Retained earnings 1,523 1,159
Net unrealized loss on securities 33 (18)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 4,451 4,036
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 48,655 $ 43,175
========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE>
Tri-State 1st Bank, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---------- ---------- ---------- ----------
(In Thousands, Except (In Thousands, Except
Per Share Amounts) Per Share Amounts)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 667 $ 567 $ 1,885 $ 1,691
Interest-bearing deposits with other banks - 1 2 3
Federal funds sold 27 49 82 113
Investment securities:
Taxable 131 125 376 345
Exempt from federal income tax 59 45 169 123
---------- ---------- ---------- ----------
Total interest income 884 787 2,514 2,275
---------- ---------- ---------- ----------
INTEREST EXPENSE
Deposits 343 312 961 894
Other borrowings 4 5 12 17
---------- ---------- ---------- ----------
Total interest expense 347 317 973 911
---------- ---------- ---------- ----------
NET INTEREST INCOME 537 470 1,541 1,364
Provision for loan losses 13 13 42 37
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 524 457 1,499 1,327
---------- ---------- ---------- ----------
OTHER OPERATING INCOME
Service fees on deposit accounts 59 68 176 186
Investment security losses - (4) (3) (4)
Other 25 17 81 85
---------- ---------- ---------- ----------
Total other operating income 84 81 254 267
---------- ---------- ---------- ----------
OTHER OPERATING EXPENSE
Salaries and employee benefits 199 165 551 474
Occupancy 44 42 130 131
Furniture and equipment 35 31 92 95
Other 145 138 434 393
---------- ---------- ---------- ----------
Total other operating expense 423 376 1,207 1,093
---------- ---------- ---------- ----------
Income before income taxes 185 162 546 501
Income taxes 42 40 127 133
---------- ---------- ---------- ----------
NET INCOME $ 143 $ 122 $ 419 $ 368
========== ========== ========== ==========
EARNINGS PER SHARE $ 0.35 $ 0.30 $ 1.02 $ 0.90
AVERAGE SHARES OUTSTANDING 410,800 410,800 410,800 410,800
</TABLE>
See the accompanying notes to the consolidated financial statements.
4
<PAGE>
Tri-State 1st Bank, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Net Unrealized
Common Retained Gain (Loss) on
Stock Surplus Earnings Securities Total
--------- --------- --------- --------- ---------
(In Thousands Except Per Share Amount)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ 1,284 $ 1,611 $ 1,159 $ (18) $ 4,036
Net income 419 419
Dividend declared (55) (55)
Net unrealized gain on
securities 51 51
--------- --------- --------- --------- ---------
Balance, September 30, 1997 $ 1,284 $ 1,611 $ 1,523 $ 33 $ 4,451
========= ========= ========= ========= =========
</TABLE>
See the accompanying notes to the consolidated financial statements.
5
<PAGE>
Tri-State 1st Bank, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
1997 1996
--------- ---------
(In Thousands)
OPERATING ACTIVITIES
Net income $ 419 $ 368
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 42 37
Depreciation and amortization, net 150 133
Investment security losses 3 4
Increase in accrued interest receivable (59) (52)
Increase (decrease) in accrued interest payable 64 52
Other (50) 379
--------- ---------
Net cash provided by operating activities 569 921
--------- ---------
INVESTING ACTIVITIES
Securities available for sale:
Proceeds from sales 348 775
Proceeds from principal repayments and maturities 1,823 930
Purchases of securities (4,321) (2,174)
Investment securities:
Proceeds from principal repayments and maturities 250 132
Purchases of securities (940)
Net loan originations (2,592) (943)
Premium paid on deposits purchased (136) -
Acquisition of premises and equipment (262) (33)
Proceeds from sale of real estate owned 54 74
--------- ---------
Net cash used for investing activities (4,836) (2,179)
--------- ---------
FINANCING ACTIVITIES
Net increase in deposits 5,058 4,430
Principal payments on other borrowings (76) (71)
Cash dividends paid (55) (51)
--------- ---------
Net cash provided by financing activities 4,927 4,308
--------- ---------
Increase in cash and cash equivalents 660 3,050
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,577 4,107
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,237 $ 7,157
========= =========
See accompanying notes to the consolidated financial statements.
6
<PAGE>
Tri-State 1st Bank, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements of Tri-State 1st Bank, Inc., (the
"Company"), includes its wholly-owned subsidiary, 1st National Community Bank
(the "Bank"). All significant intercompany balances and transactions have
been eliminated.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with instructions to Form 10-QSB and, therefore, do not
necessarily include all information which would be included in audited
financial statements. The information furnished reflects all normal recurring
adjustments which are, in the opinion of management, necessary for the fair
statement of the results of the period. The results of operations for the
interim periods are not necessarily indicative of the results to be expected
for the full year.
NOTE 2 - PENDING ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board ("FASB") issued
Statement No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities." The Statement provides consistent
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings based on control-oriented "financial
components" approach. Under this approach, after a transfer of financial
assets, an entity recognizes the financial and servicing assets it controls
and liabilities it has incurred, derecognizes financial assets when control
has been surrendered and derecognizes liabilities when extinguished. The
provisions of No. 125 are effective for transactions occurring after
December 31, 1996, except those provisions relating to repurchase agreements,
securities lending, and other similar transactions and pledged collateral,
which have been delayed until after December 31, 1997 by Statement No. 127,
Deferral of the Effective Date of Certain Provisions of FASB Statement No.
125, an amendment of FASB Statement No. 125." The adoption of these
statements is not expected to have a material impact on financial position or
results of operations.
In July 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income."
Statement No. 130 is effective for fiscal years beginning after December 15,
1997. This statement establishes standards for reporting and presentation of
comprehensive income and its components (revenue, expenses, gains and losses)
in a full set of general purpose financial statements. It requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that
is presented with the same prominence as other financial statements.
Statement No. 130 requires that companies (I) classify items of other
comprehensive income by their nature in a financial and (ii) display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of the statement
of financial condition. Reclassification of financial statements for earlier
periods provided for comprehensive purposes is required.
On March 3, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 128, "Earnings Per Share." This statement
re-defines the standards for computing earnings per share (EPS) previously
found in Accounting Principles Board Opinion No. 15, Earnings Per Share.
Statement No. 128 establishes new standards for computing and presenting EPS
and requires dual presentation of "basic" and "diluted" EPS on the face of the
income statement for all entities with complex capital structures. Under
Statement No. 128, basic EPS is to be computed based upon income available to
common shareholders and weighted average number of common shares outstanding
for the period. Diluted EPS is to reflect the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the Company. Statement No. 128 also requires
the restatement of all prior-period EPS data presented. The Company will
adopt Statement No. 128 on December 31, 1997 and based on current estimates,
does not believe the effect on adoption will have a significant impact on the
Company's financial position or results of operations.
NOTE 3 - EARNINGS PER SHARE
Earnings per share are calculated on the basis of the weighted average number
of shares outstanding for the periods after giving retroactive effect of the
two-for-one stock split in July 1997.
7
<PAGE>
Tri-State 1st Bank, Inc. and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Total Assets on September 30, 1997, were $48,655,000 and had increased
approximately $5.5 million over the $43,175,000 reported as of December 31,
1996. This is a 12.7% increase in assets for the nine month period. During
the same period, Federal Funds Sold increased 61.8% or $1,050,000 to
$2,750,000; Total Securities increased $1,951,000 or 16.0% from $12,187,000 to
$14,138,000; and the Net Loans of $26,280,000 reflect a $2,519,000 or 10.6%
increase from $23,761,000. Cash and Due from Banks decreased $420,000 to
$3,358,000, while Premises and Equipment grew by $173,000 to $1,389,000 and
Accrued Interest and Other Assets increased $177,000 to $611,000.
Total Deposits on September 30, 1997, were $43,748,000 which was an increase
since December 31, 1996, of $5,058,000 or 13.1% from $38,690,000. Total
Stockholder Equity increased for the nine month period by $415,000 or 10.3% to
$4,451,000.
The increase in Federal Funds Sold, while significant in percent of increase
of 61.8% was not significant in terms of a shift in assets of $1,050,000,
since management prefers to keep between $2 million and $3 million available
to meet the liquidity needs and loan demand of bank customers. Total Funds
Sold on September 30, 1997, was $2,750,000.
The increase in Investment Securities on September 30, 1997, over the nine
month period is the result of a strategy of management to invest funds in the
investment portfolio methodically over periods of time in order to employ
funds not required for loan demand in a manner which will add to the safety,
liquidity and improved earnings potential of the bank. Investing in
securities regularly, rather than investing at times when it is perceived that
interest rates may be peaking or troughing, helps hedge against some interest
rate risk exposure from market fluctuations which could adversely impact the
value of the Company's assets. Of the two components of the securities
portfolio, there was a $2,220,000 or 22.2% increase in Securities Available
for Sale and a $269,000 or 12.2% decrease in the Securities Held to Maturity,
after replacement of matured and called securities during the nine month
period. The shift to a larger portion of Available for Sale securities in the
portfolio improves the liquidity of the bank since these securities may be
sold in accordance with bank policy in order to meet cash flow requirements
should the need arise.
The demand for loans which met the credit standards of the Bank grew
substantially for the nine month period ended September 30, 1997, although not
as much as the $5,065,000 increase in Total Assets. The $2,546,000 increase
in Loans represented an increase of 10.6% in the loan portfolio for the nine
month period. This growth in loans was the result of a general increase in
practically every category of loans, but primarily from increases in
residential and commercial loans secured with real estate. Construction loans
were $84,000 higher, Home Equities were up $39,000, Other loans secured by
residential real estate were $1,230,000 higher, and commercial real estate
loans were up $955,000. Other commercial and industrial loans were up
$164,000, consumer loans were $199,000 higher and loans to political
subdivisions were down $134,000. The growth in loans can be attributed only
to a limited degree to the assumption of the assets and loans at the New
Cumberland, West Virginia office which was acquired as a 1st Bank branch on
September 2, 1997, since that office's loans contributed only $339,000 to the
loan totals.
The Allowance for Loan Losses increased $27,000 or 9.3% over the same nine
month period while loans increased 10.6%. The relationship between the
Allowance for Loan Losses and loans outstanding is a function of credit
quality and known risk factors of the loan portfolio.
The increase in Premises and Equipment of $173,000 or 14.2% and in Accrued
Interest and Other Assets of $177,000 or 40.8% over the nine months since
December 31, 1996, can be attributed primarily to the acquisition of a New
Cumberland office.
Total Deposits on September 30, 1997, were $43,378,000 which was an increase
of $5,058,000 or 13.1% from the $38,690,000 on December 31, 1996. The deposit
types which increased in the greatest amount over the nine month period were
Noninterest-Bearing Demand which was up $1,355,000 or 22.6%, Savings were up
$1,303,000 or 16.5% and Time Deposits up $2,022,000 or 16.8%. Interest
Bearing Demand was up $109,000 or 1.4% and Money Market Accounts were up
$269,000 or 5.6%. The acquisition of the New Cumberland office did have a
significant impact on the increase in deposits since deposits at that office
totaled $2,491,000 on September 30, 1997, or 49.0% of the increase in deposits
for the nine month period.
There was a $76,000 decrease in Other Borrowings as two notes with the Federal
Home Loan Bank were paid down to $203,000 on September 30, 1997, and an
$83,000 increase in Accrued Interest and Other Liabilities which resulted
primarily from the addition of the New Cumberland office, accrued Directors
Fees and an increase in Accrued Interest because of the increase in Interest
Bearing Deposits.
Shareholders Equity increased $415,000 to $4,451,000 on September 30, 1997.
This is an increase of 10.3% for the nine month period. This the result of an
increase in the Net Retained Earnings of $364,000 or 31.4% and an improvement
in the Net Unrealized Loss/Gain on Securities in the amount of $51,000; from a
loss of $18,000 to a gain of $33,000.
A Net Unrealized Loss or Gain on Securities should be considered to be
temporary in nature since a gain is attributable to the market interest rate
environment at any point in time. There was a decrease in interest rates and
therefore a strengthening of the market over the nine month period.
8
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
Comparison of the Nine Months Ended September 30, 1997 to 1996
- --------------------------------------------------------------
GENERAL
The Company had Net Income of $419,000 for the nine months ended September 30,
1997. For the same period during 1996, the earnings were $368,000. The
increase of $51,000 is a 13.9% change over September 30, 1996.
NET INTEREST INCOME
The Net Interest Income for the nine month period ended September 30, 1997,
was up $177,000 from the same nine months of 1996 for an increase of 13.0%.
The principal reason for the amount of increase is that interest income rose
at a 10.5% rate in the amount of $239,000 while interest expense increased by
only 6.8% or $62,000. Loan and Fee Income was up $194,000 or 11.5% for the
period primarily as a result of the additional loans receivable during the
nine months in 1997 compared with 1996. The earnings on Federal Funds Sold
was down $31,000 or 27.4% because there were less funds available for deposit
with other Banks and some reduction in the rates paid. However, the $77,000
increased interest income on securities, which was up 16.4%, more than offset
the decrease in Federal Funds Income. Interest Income on taxable securities
was up $31,000 or 9.0% and income on securities exempt from federal income tax
was $46,000 or 37.4% greater.
The $67,000 or 7.5% increase Interest Expense on Deposits was less than the
percent of increase in deposits as a whole and resulted from the fact that
much of the growth of deposits came in the noninterest bearing type and some
general reduction in interest rates in the economy. The cost of Other
Borrowed Funds declined $5,000 or 29.4% as the notes with the Federal Home
Loan Bank were paid down.
PROVISION FOR LOAN LOSSES
Based upon management's continuing evaluation of the loan portfolio, $42,000
was provided for loan losses over the first nine months of 1997. This was
$5,000 or 13.5% greater than the provision for the like period of 1996. This
provision is made in order to maintain the Allowance for Loan Losses at an
appropriate level. The increase in the loans during the first nine months of
1997 was the principal reason that management determined to make the provision
in the amount of $42,000. The Net Interest Income after Provision for Loan
Losses in 1997 was up $172,000 or 13.0% over the same nine months of 1996.
OTHER OPERATING INCOME
Other Operating Income showed a $13,000 or 4.9% decrease through September 30,
1997 when compared with the nine month period ended September 30, 1996. This
noninterest income decreased to $254,000 for the first nine months of 1997
compared with $267,000 on September 30, 1996. Service fees on deposit
accounts decreased $10,000 or 5.4% and there was a $4,000 or 4.7% decline in
Other Operating Income. The Bank has not increased the rate of services
charges over the past year and experienced a reduction in overdraft fees in
several accounts. Also, a reduction in revenues on credit life fees and other
customer service fees resulted in the reduction in Other Operating Income. A
loss of $3,000 was taken in the sale of securities in order to provide a
greater current return and this is $1,000 less than security sales losses
taken for the same period in 1996.
OTHER OPERATING EXPENSE
Other Operating Expense was $114,000 higher on September 30, 1997, than on the
same date in 1996. Salaries of employees and benefits increased $77,000 or
16.24% with the hiring of additional staff for existing operations due to
growth, the staffing the New Cumberland office, and salary increases granted
to retain the experienced and capable present staff. Occupancy Expenses and
Furniture and Equipment Expenses showed modest declines of $1,000 and $3,000
respectively. Other Operating Expenses rose $41,000 or 10.4% which was due
primarily to increases in advertising, customer check expense, postage,
telephone, some costs in connection with initiating new services, the
acquisition of the new office in West Virginia, and accrued organizational
expenses in connection with the formation of the holding company. These
increased expenses are related to growth or anticipated growth of the Bank and
may be recouped from greater future earnings.
INCOME TAX EXPENSE
Income Taxes decreased $6,000 or 4.5% for first nine months of 1997 compared
with the same nine month period in 1996. The decline occurred in spite of a
$45,000 or 9.0% increase in pre-tax income. A greater portion of the security
portfolio was invested in tax-exempt securities in 1997 than in 1996. This
resulted in a reduction of the income ratio of taxable income of the company.
Comparison of the Three Months Ended September 30, 1997 to 1996
- ---------------------------------------------------------------
GENERAL
- -------
The Company had Net Income of $143,000 for the three months ended
September 30, 1997. When compared with the same three month period in 1996,
there was a $21,000 increase in Net Income from $122,000 for a 17.2% gain.
NET INTEREST INCOME
- -------------------
There was a $67,000 or 14.3% increase in Net Interest Income for the three
month period ended September 30, 1997, when compared with the same three month
period in 1996. This resulted from a $97,000 or 12.3% increase in interest
income while interest expense increased only $30,000 or 9.5% in the
comparable periods of the respective years. Interest on Loans and Fees was up
$100,000 or 17.6% to $667,000 for the three months of 1997 compared with 1996.
This reflects a significant growth of loans in 1997. Income on Federal Funds
Sold for the three month period declined $22,000 or 44.9% as loan demand was
increasing more rapidly than deposits and so funds were used to fund the loan
demand. The income on securities increased $20,000 or 11.8% compared with
1996. This resulted from a $6,000 or 4.8% rise in Taxables and a $14,000 or
31.1% increase in securities exempt from federal income tax. The increase in
interest expense on deposits increased $31,000 or 9.9% while the expense of
Other Borrowings decreased $1,000. The increase in interest expense on
deposits was a product of the growth of deposits over the three month period
since there was no significant change in the rate of interest paid on customer
deposits.
9
<PAGE>
PROVISION FOR LOAN LOSSES
- -------------------------
After careful evaluation by management of the composition of the loan
portfolio and considering the growth of loans outstanding, $13,000 was
allotted as the Provision for Loan Losses during the three month period ended
September 30, 1997. This is the same amount provided during the three month
period in 1996. This resulted in a $524,000 Net Interest Income after loss
provision which was $67,000 or 14.7% higher than in 1996.
OTHER OPERATING INCOME
For the three month period ended September 30, 1997, the Other Operating
Income was up $3,000 or 3.7% over the same period in 1996. The service fee
income on deposits was down $9,000 or 13.2% when compared to the same period
in 1996, but the amount of income for the period was approximately the same as
the average for the entire nine month period. The relatively large decrease
by comparison can be attributed to a surge in fee income for the three month
period in 1996. There were no security losses taken in the three month period
compared to $4,000 losses in 1996, and Other Income increased $8,000 or 47.1%.
A decline in fees on demand deposit accounts was offset by increases in other
customer fees, safe deposit box rental and MAC and Check Card fees.
OTHER OPERATING EXPENSE
For the three months ended September 30, 1997, Other Operating Expense showed
a $47,000 or 12.5% increase over the like period in 1996. Salaries and
employee benefits were up $34,000 or 20.6% which is greater than the average
for the full year. The greater percent increase results from the fact that
there was a salary adjustment for staff members made during the month of July
and new staff was added in September with the addition of the New Cumberland
office. The rising cost of medical insurance and disability insurance earlier
in the year carried into the third quarter.
Occupancy expense was up $2,000, furniture and fixtures was up $4,000 and
other operating expense was up $7,000 for the third quarter of 1997 compared
with the same period in 1996. The most significant factor in these increases
was the acquisition of the new office in West Virginia.
INCOME TAX EXPENSE
Net current earnings before income taxes was $23,000 or 14.2% higher on
September 30, 1997 over the same period in 1996. The $185,000 for the quarter
represented almost exactly one-third of the net earnings before taxes for the
entire nine month period of 1997.
It was a relatively stronger quarter than the third quarter of 1996 when
compared with nine month figures each year. Income taxes were $2,000 or 5.0%
higher in spite of the greater amount represented by tax-exempt income. With
taxes representing a smaller percent of the total income, the Net Income
increased 17.2% from 1996 compared with 13.9% for the entire nine month period
ended September 30, 1997.
LIQUIDITY AND CASH FLOWS
- ------------------------
The liquidity of a banking institution reflects its ability to provide funds
to meet loan requests, to accommodate the possible outflows of deposits and to
take advantage of interest rate market opportunities. It requires continuous
analysis by management in order to match the maturities of short-term loans
and investments with the various types of deposits and borrowings. Bank
liquidity is normally considered in terms of the nature and the mix of the
Bank's sources and uses of funds.
The Consolidated Statement of Cash Flows for the nine month period ended
September 30, 1997, shows an increase from year end 1996 in Cash and Cash
Equivalency of $660,000 to $6,237,000, but a decrease of $920,000 from
September 30, 1996. Purchases of new securities after allowing for proceeds
from principal repayment used up $2,498,000 and Net Loan Originations used
another $2,592,000. This was offset by a $5,058,000 net increase in deposits.
Management is not aware of any known trends, events or uncertainties that
would have a material effect on either the liquidity, capital resources or
operations of the Company. Management is not aware of any current
recommendations by the regulatory authorities, which , if implemented, would
have a material effect on the liquidity, capital resources or operations of
the Company.
10
<PAGE>
RISK ELEMENTS
- -------------
The following schedule presents the non-performing assets at September 30,
1997 and December 31, 1996.
September 30 December 31,
1997 1996
---------- ----------
(In Thousands)
Non-performing loans
Loans past due 90 days
or more $ 54 $ 236
Nonaccrual loans - -
Impaired loans - 110
---------- ----------
Total non-performing loans 54 346
---------- ----------
Other non-performing assets
Other real estate owned - 54
Repossessed assets - -
---------- ----------
Total other non-performing assets - 54
---------- ----------
Total non-performing assets $ 54 $ 400
---------- ----------
Non-performing loans as a
percentage of total loans 0.20% 1.44%
Non-performing assets as a
percentage of total loans and
other non-performing assets 0.20% 1.66%
During the nine month period ended September 30, 1997, Loans increased
$2,546,000 or 10.6% while the allowance for loan losses increased $27,000 or
9.3%. The percentage of provision for loan losses to loans and leases
outstanding was 1.19% on September 30, 1997.
The relationship between the allowance for loan losses and outstanding loans
is a function of the credit quality and known risks attributed to the loan
portfolio. An on-going loan review program and credit approval process is
used to maintain credit quality. On September 30, 1997, the Non-Performing
Loans as a percentage of total loans was .2% compared to 1.44% at year end
1996.
Management performs a quarterly evaluation of the allowance for loan losses
which incorporates internal loan review, actual historical losses, negative
economic trends in the local and national market and the other pertinent
factors. The evaluation is presented to and approved by the Board of
Directors of the Bank. Management, through the use of the quarterly
evaluation process believes that the allowance was at an adequate level as of
September 30, 1997.
11
<PAGE>
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in rights of the Company's Security holders.
None.
Item 3. Defaults by the Company on its senior securities.
None.
Item 4. Results of votes of security holders.
None.
Item 5. Other Information.
In July 1997, 205,000 shares of Tri-State 1st Bank shares were
issued to the security holders of record on July 9, 1997, as a
result of a 2 for 1 stock split declared by the Board of Directors
on June 26, 1997.
On August 14, 1997, 17,000 options to purchase shares of Tri-State
1st Bank were allocated to certain key executive officers and
Directors of the holding company in accordance with The Tri-State
1st Bank Option Plan approved by the Company on February 27, 1997.
Item 6. Exhibits and Reports on Form 8-K.
(a)Exhibits.
None.
(b)Reports on Form 8-K.
None.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Tri-State 1st Bank, Inc.
(Registrant)
Date: By:\s\ Charles B. Lang
November 12, 1997 ----------------------------------
Charles B. Lang
President and Chief Executive Officer
Date: By:\s\ Keith R. Clutter
November 12, 1997 ----------------------------------
Keith R. Clutter
Secretary
13
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<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1997
<CASH> 3,358
<INT-BEARING-DEPOSITS> 129
<FED-FUNDS-SOLD> 2,750
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 12,202
<INVESTMENTS-CARRYING> 1,936
<INVESTMENTS-MARKET> 1,967
<LOANS> 25,597
<ALLOWANCE> 317
<TOTAL-ASSETS> 48,655
<DEPOSITS> 43,748
<SHORT-TERM> 203
<LIABILITIES-OTHER> 253
<LONG-TERM> 0
0
0
<COMMON> 1,284
<OTHER-SE> 3,167
<TOTAL-LIABILITIES-AND-EQUITY> 48,655
<INTEREST-LOAN> 1,885
<INTEREST-INVEST> 547
<INTEREST-OTHER> 82
<INTEREST-TOTAL> 2,514
<INTEREST-DEPOSIT> 961
<INTEREST-EXPENSE> 973
<INTEREST-INCOME-NET> 1,541
<LOAN-LOSSES> 42
<SECURITIES-GAINS> (3)
<EXPENSE-OTHER> 1,207
<INCOME-PRETAX> 546
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 419
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 3.17
<LOANS-NON> 0
<LOANS-PAST> 54
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 290
<CHARGE-OFFS> 24
<RECOVERIES> 9
<ALLOWANCE-CLOSE> 317
<ALLOWANCE-DOMESTIC> 197
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 120
</TABLE>
