<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 March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 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, OH 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 May 12, 1998 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
March 31, 1998 and December 31, 1997 3
Consolidated Statement of Income
for the three months ended
March 31, 1998 and 1997 4
Consolidated Statement of Changes
in Stockholders' Equity for the
three months ended March 31, 5
Consolidated Statement of Cash Flows
for the three months ended
March 31, 1998 and 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 14
<PAGE>
Tri-State 1st Bank, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEET
(Unaudited)
March 31, December 31,
1998 1997
------------- -------------
(In Thousands)
ASSETS
Cash and due from banks $ 3,312 $ 4,032
Interest-bearing deposits
with other banks 73 101
Federal funds sold 6,396 1,550
Securities available for sale 14,088 13,088
Investment securities (estimated
market value of $1,815 and $1,937) 1,771 1,897
Net loans receivable 26,384 25,703
Premises and equipment 1,417 1,422
Accrued interest and other assets 632 533
------------- -------------
TOTAL ASSETS $ 54,073 $ 48,326
============= =============
LIABILITIES
Deposits:
Noninterest-bearing demand $ 7,525 $ 6,532
Interest-bearing demand 10,151 8,250
Money market 5,152 5,045
Savings 9,811 9,324
Time 15,039 13,752
------------- -------------
Total deposits 47,678 42,903
Other borrowings 1,347 677
Accrued interest and other liabilities 376 231
------------- -------------
TOTAL LIABILITIES 49,401 43,811
------------- -------------
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 1,701 1,567
Net unrealized gain on securities 76 53
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 4,672 4,515
------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 54,073 $ 48,326
$============ $============
See accompanying notes to the consolidated financial statements.
3
<PAGE>
Tri-State 1st Bank, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Three Months Ended
March 31,
1998 1997
------------- -------------
(In Thousands, Except
Per Share Amounts)
INTEREST INCOME
Loans, including fees $ 643 $ 589
Interest-bearing deposits
with other banks 1 1
Federal funds sold 57 22
Investment securities:
Taxable 146 123
Exempt from federal income tax 70 54
------------- -------------
Total interest income 917 789
------------- -------------
INTEREST EXPENSE
Deposits 360 299
Other borrowings 12 4
------------- -------------
Total interest expense 372 303
------------- -------------
NET INTEREST INCOME 545 486
Provision for loan losses 23 8
------------- -------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 522 478
------------- -------------
OTHER OPERATING INCOME
Service fees on deposit accounts 68 57
Investment security gains - -
Other 56 35
------------- -------------
Total other operating income 124 92
------------- -------------
OTHER OPERATING EXPENSE
Salaries and employee benefits 231 176
Occupancy 45 44
Furniture and equipment 36 28
Federal deposit insurance premiums 1 -
Other 164 141
------------- -------------
Total other operating expense 477 389
------------- -------------
Income before income taxes 169 181
Income taxes 35 44
------------- -------------
NET INCOME $ 134 $ 137
============= =============
EARNINGS PER SHARE
Basic $ 0.33 $ 0.33
Diluted $ 0.33 $ 0.33
See the accompanying notes to the consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
Tri-State 1st Bank, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
Accumulated
Other Total
Common Retained Comprehensive Comprehensive Stockholders'
Stock Surplus Earnings Income Income Equity
---------- ---------- ---------- ---------- ---------- ----------
(In Thousands Except Per Share Amount)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $ 1,284 $ 1,611 $ 1,567 $ 53 $ - $ 4,515
Net income 134 134
Other comprehensive income:
Unrealized gain on available for 23 23
sale securities ----------
---------- ---------- ---------- ---------- $ 157 ----------
Balance, December 31, 1997 $ 1,284 $ 1,611 $ 1,701 $ 76 ========== $ 4,672
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE>
Tri-State 1st Bank, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
1998 1997
------------- -------------
(In Thousands)
OPERATING ACTIVITIES
Net income $ 134 $ 137
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for loan losses 23 8
Depreciation and amortization, net 38 48
Increase in accrued interest
receivable (51) (58)
Increase in accrued interest payable 62 51
Other 22 (29)
------------- -------------
Net cash provided by operating
activities 228 157
------------- -------------
INVESTING ACTIVITIES
Securities available for sale:
Proceeds from sales - 1,300
Proceeds from principal repayments
and maturities 1,494 5
Purchases of securities (2,462) (1,812)
Investment securities:
Proceeds from principal repayments
and maturities 126 11
Net loan originations (704) (642)
Acquisition of premises and equipment (29) (10)
Proceeds from sale of real estate owned - 54
------------- -------------
Net cash used for investing activities (1,575) (1,094)
------------- -------------
FINANCING ACTIVITIES
Net increase (decrease) in deposits 4,775 (852)
Increase in securities sold under
agreement to repurchase 697 -
Principal payments on other borrowings (27) (25)
------------- -------------
Net cash provided by (used for)
financing activities 5,445 (877)
------------- -------------
Increase (decrease) in cash and
cash equivalents 4,098 (1,814)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 5,683 5,577
------------- -------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 9,781 $ 3,763
============= =============
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 - ACCOUNTING STANDARD ADOPTION: COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." In adopting
Statement No. 130, the Company is required to present comprehensive income and
its components in a full set of general purpose financial statements. The
Company has elected to report the effects of Statement No. 130 as part of the
Statement of Changes in Stockholders' Equity.
7
<PAGE>
Tri-State 1st Bank, Inc. and Subsidiary
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Total Assets on March 31, 1998 of $54,073,000 represented an increase of
$5,747,000 or 11.89% from December 31, 1997. The increase of assets was
comprised of a $4,846,000 or 312.65% increase in Federal Funds Sold, a
$1,000,000 or 7.64% increase in Securities Available for Sale, and a $687,000
or 2.64% increase in Loans.
The Cash and Due from Banks at $3,312,000 on March 31, 1998, represented a
decrease of $720,000 or 17.86% from December 31, 1997. The nature of the
Bank s customers and the number of banking offices dictate that 1st Bank
maintains higher amounts of cash to meet year-end needs. The March balance is
more representative of normal Cash levels during the year.
The $6,396,000 balance in Federal Funds Sold on the last day of March, an
increase of 312.65% from year-end 1997, is higher than normal and was the
result of rapid growth of deposits during the quarter. This deposit growth
was not matched by similar rapid growth in loans and security investments.
Monies awaiting reinvestment in securities or loans are placed in Federal
Funds Sold where they can generate earnings for the Bank. $2,000,000 to
$4,000,000 is the normal range for Federal Funds Sold when deposit levels are
stable.
Investment Securities increased $874,000 or 5.83% to $15,859,000 at March 31,
1997, as compared with $14,985,000 at year-end 1997. It is a management
strategy of 1st Bank to invest funds in the security portfolio methodically in
order to employ monies not required for loans in such a way that it will
provide safety, liquidity and improved earnings potential. Investing in
securities on a regular basis, rather than investing based upon when interest
rates are perceived to peak and trough, helps hedge against the risk of market
value fluctuations which could adversely effect the value of the Bank's
assets. The $1,000,000 or 7,64% increase in Securities available for sale to
$14,088,000 was partially offset by a $126,000 or 6.64% decrease in Investment
securities held to maturity to $1,771,000 on March 31, 1998. After allowing
for the replacement of matured and called securities during the three month
period, the net increase in the securities can be accounted for by a $556,000
increase in federal government sponsored agency obligations and to a lesser
extent a $232,000 increase in mortgage-backed, pass-through government agency
issued securities.
Loans receivable at March 31, 1998, of $26,699,000 represented an increase of
$687,000 or 2.64% from $26,012,000 on December 31, 1997. The growth in the
loan portfolio was primarily due to a $300,000 increase in residential real
estate mortgage loans and a $300,000 increase in commercial and industrial
loans including commercial mortgage loans. Management will continue to focus
its loan origination efforts in 1998 on obtaining a more balanced mix of
loans.
The Allowance for loan losses increased in the amount of $6,000 for the three
month period ended March 31, 1998. The overall ratio of allowance to loans
receivable remained essentially unchanged at 1.18% on March 31, 1998, compared
with 1.19% on December 31, 1997. The relationship between the Allowance and
loans receivable is a function of credit quality and known risk factors of the
loan portfolio.
8
<PAGE>
Total Deposits on March 31, 1998, were $47,678,000 representing an increase of
$4,775,000 or 11.13% from $42,903,000 on December 31, 1997. This growth is
quite strong for a period of only three months during a season of the year
when deposit growth is normally flat. The increase resulted from a general
across-the-board growth of all types of deposits. Rates of interest did not
change in the three month period. These increases therefore can be attributed
to marketing and good community support, since the Bank did not engage in
aggressive pricing to attract these deposits. Noninterest bearing demand
accounts were up $993,000 or 15.20%, Interest bearing demand accounts
increased $1,901,000 or 23.14%, Money market accounts grew $107,000 or 2.12%,
Savings accounts were up $487,000 or 5.22% and Time Deposits increased
$1,287,000 or 9.36%. A $670,000 or 98.97% increase in Other borrowings to
$1,347,000 resulted from growth in a Repurchase Agreement account established
to accommodate a deposit relationship with a customer.
The increase in Accrued interest and other liabilities of $145,000 or 62.77%
to $376,000 on March 31, 1998, is attributable to increases in accrued
interest payable on deposits and accrued payroll taxes.
Shareholder's Equity increased $157,000 or 3.48% to $4,672,000 for the three
month period ended March 31, 1998, due to an increase in net retained earnings
from operations of $134,000 or 8.55% and a $23,000 or 43.40% increase in the
Net unrealized gain on securities. The Net unrealized gain on securities is
considered temporary in nature and is attributable to a marginal weakening of
the market interest rate environment at March 31, 1998 as compared to
December 31, 1997.
RESULTS OF OPERATIONS
Comparison of the Three Months Ended March 31, 1998 and 1997
- ------------------------------------------------------------
General
Net income for the three month period ended March 31, 1998 totaled $134,000 or
$.33 per share compared to $137,000 or $.33 per share on March 31, 1997, after
adjustment for a stock split which occurred in July of 1997. Although the Net
income comparison on a year-to-year basis was down slightly, Total interest
income and Other operating income rose significantly. A corresponding sharp
increase in Total interest expense and Other operating expense which in part
can be attributed to the acquisition of a banking office in New Cumberland,
West Virginia, more than offset the $160,000 increase in Total income of the
Bank for the first quarter of 1998 over the same period in 1997. The rapid
rise of deposits in the first quarter of 1998 could not be placed safely and
soundly in new loans and securities at higher yields in order to maintain
interest margins comparable to the same period in 1997. This had an impact on
the relative results of the first quarter of each year.
Net Interest Income
Net interest income increased in the first quarter of 1998 by $59,000 or
12.14% over the first three months of 1997. The increase was the result of a
$128,000 or 16.22% rise in interest income, which was partially offset by a
$69,000 or 22.77% increase in interest expense.
The improved interest income resulted from a combination of increases of
$54,000 or 9.17% in loan income including fees, $35,000 or 159.09% in Federal
funds sold, and $39,000 or 22.03% in Investment securities income.
Total loan income increases can be attributed primarily to the increase in the
Loans outstanding since there was actually a slight decrease in the average
yield on loans in the first quarter of 1998 compared with the same period of
1997. An increase in the Fees on loans during the first quarter of 1998 as
compared to the first quarter of 1997 also enhanced Total loan income.
9
<PAGE>
The increase in earnings on investments was allocated between a $23,000 or
18.7% rise in Taxable securities income and a $16,000 or 29.63% increase in
securities income exempt from federal income tax. The average yield on the
securities has decreased as interest rates have weakened over the past twelve
months. The better earnings can be credited to increases in the amount of
securities held in the portfolio. The greater amount of funds invested in tax
exempt securities provided a higher after-tax return and favorably impacted
Net income of the Bank.
The Interest expense increase of $69,000 on March 31, 1998, compared with the
same period of 1997 was due primarily to the increase in the volume of
interest-bearing deposits with the Bank. Interest expense on deposits was
$61,000 or 20.40% higher in the first quarter of 1998, and Interest expense on
Other borrowings including Repurchase Agreements was $8,000 or 200.00% higher.
However existing customers moving into the higher yielding types of accounts
and new customers opting for time deposits also contributed to the interest
expense increase.
Provision for Loan Losses
The provision for loan losses for the three month period ended March 31, 1998,
was $15,000 or 187.50% greater than for the same period in 1997. Management
makes periodic provisions to the Allowance for loan losses to maintain the
Allowance at an acceptable level commensurate with management's assessment of
the credit risks inherent in the loan portfolio.
Other Operating Income
Other operating income, which is comprised principally of fees and charges on
customer deposit accounts, increased $11,000 or 19.30% to $68,000 for the
three months ended March 31, 1998 over the same period of 1997. Other income
increased $21,000 or 60.00% to $56,000 for the three months ended March 31,
1998, and was the result of a $11,000 increase in commissions on the sale of
life insurance and a $10,000 increase in revenues from Safe Deposit Boxes, ATM
fees and other services.
Other Operating Expense
There was a significant increase in Other operating expense in the amount of
$88,000 or 22.62% to $477,000 for the three months ended March 31, 1998, from
the three month period ended March 31, 1997. Salary and employee benefits
increased $55,000 or 31.25% as the result of the employment of the staff at
the New Cumberland office, additional personnel hired to handle growing
customer volume and normal salary increases and related expenses.
Occupancy and equipment expenses increased $9,000 or 12.5% to $81,000 on March
31, 1998, principally as a result of the addition of the West Virginia office
and new equipment purchases. Federal Deposit Insurance Premiums added $1,000.
Other operating expenses increased $23,000 or 16.31% in the first quarter of
1998 over the like period in 1997 as a result of increases in a number of
miscellaneous expense items.
Income Tax Expense
Income tax expense decreased $9,000 or 20.45% from the same period in 1997.
The decrease was the result of a lesser taxable income which was down by
$12,000 or 6.63% and the larger portion of taxable income which could be
attributed to tax exempt securities and loans.
On March 31, 1998, non-performing loans, which are comprised of commercial and
consumer loans contractually past due 90 days or more as to interest or
principal payments but not on nonaccrual status because of collateral
considerations or collection status, and unimpaired loans, which represent
nonaccrual commercial loan types, amounted to $97,000, a decrease of $5,000 or
4.90% from December 31, 1997 totals. Combined non-performing loans and other
non-performing assets on March 31, 1998, represented 0.36% of total loans
which was down from 0.39% at year-end 1997. There are five loans classified
as non-performing, but two loans combined for a total of $84,000, which is
86.60% of this classification. The two loans are secured by real estate
properties. As part of management's ongoing assessment of its loan portfolio,
$2,400 of the allowance for loan losses at March 31, 1998, had been allocated
for these two loans.
10
<PAGE>
RISK ELEMENTS
The following schedule presents the non-performing assets at March 31, 1998
and December 31, 1997.
March 31, December 31,
1998 1997
------------- -------------
(In Thousands)
Non-performing loans
Loans past due 90 days
or more $ 97 $ 102
Nonaccrual loans - -
Impaired loans - -
------------- -------------
Total non-performing
loans 97 102
------------- -------------
Other non-performing assets
Other real estate owned - -
Repossessed assets - -
Total other non-performing
assets - -
Total non-performing
assets $ 97 $ 102
============= =============
Non-performing loans as a
percentage of total loans 0.36% 0.39%
Non-performing assets as a
percentage of total loans and
other non-performing assets 0.36% 0.39%
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.
[The following represents the results of matters submitted to a
vote of the shareholders at the annual meeting on March 18, 1998)
Election of Directors
The number of Class 2 Directors to be elected was established at
three (3) based upon the following vote:
For 279,923
Against 0
Abstain 0
The three nominees elected were as follows:
Keith R. Clutter
G. Allen Dickey
John P. Scotford, Sr.
Other:
S.R. Snodgrass, A.C. was elected as the Bank's Independent Auditors
for the 1998 fiscal year.
For 275,423
Against 200
Abstain 4,200
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a)The following exhibit is filed as part of this form
10-QSB, and this list includes the Exhibit Index.
Number Description Page
11 Statement recomputation
of per share earnings E - 1
27 Financial data schedule E - 2
(b)Reports on Form 8-K.
None.
12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused the report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Tri-State 1st Bank, Inc.
(Registrant)
Date: May 15 , 1998 By:\s\ Charles B. Lang
--------------------------------------
Charles B. Lang
President and Chief Executive Officer
Date: May 15 , 1998 By:\s\ Keith Clutter
--------------------------------------
Keith R. Clutter
Secretary
13
<PAGE>
Exhibit 11
Tri-State 1st Bank, Inc. and Subsidiary
Statement Re Computation of Per Share Earnings
(Unaudited)
Three Months Ended
March 31,
1998 1997
------------- -------------
Weighted-average common shares used
to calculate basic earnings per share 410,800 410,800
Common stock equivalents (stock options)
used to calculate diluted earnings
per share 1,403 -
------------- -------------
Weighted average common shares and common
stock equivalents used to calculate
diluted earnings per share 412,203 410,800
============= =============
Net income 134,000 137,000
Earnings per share:
Basic $ 0.33 $ 0.33
Diluted $ 0.33 $ 0.33
E-1
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 3,312
<INT-BEARING-DEPOSITS> 73
<FED-FUNDS-SOLD> 6,396
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 14,088
<INVESTMENTS-CARRYING> 1,771
<INVESTMENTS-MARKET> 1,815
<LOANS> 26,699
<ALLOWANCE> 315
<TOTAL-ASSETS> 54,073
<DEPOSITS> 47,678
<SHORT-TERM> 1,347
<LIABILITIES-OTHER> 376
<LONG-TERM> 0
0
0
<COMMON> 1,248
<OTHER-SE> 3,388
<TOTAL-LIABILITIES-AND-EQUITY> 54,073
<INTEREST-LOAN> 643
<INTEREST-INVEST> 216
<INTEREST-OTHER> 58
<INTEREST-TOTAL> 917
<INTEREST-DEPOSIT> 360
<INTEREST-EXPENSE> 372
<INTEREST-INCOME-NET> 545
<LOAN-LOSSES> 23
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 476
<INCOME-PRETAX> 170
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 135
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.2
<LOANS-NON> 0
<LOANS-PAST> 97
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 309
<CHARGE-OFFS> 18
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 315
<ALLOWANCE-DOMESTIC> 315
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 245
</TABLE>
