<PAGE>
1
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 June 30, 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, 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 May 12, 1998 there were 451,869 shares outstanding of the issuer's class
of common stock.
<PAGE>
2
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 June 30, 1998
and December 31, 1997 3
Consolidated Statement of Income for the three and
six months ended June 30, 1998 and 1997 4
Consolidated Statement of Changes in Stockholders'
Equity for the six months ended June 30, 1998 5
Consolidated Statement of Cash Flows for the six
months ended June 30, 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>
3
Tri-State 1st Bank, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30, December 31,
1998 1997
---------- ----------
(In Thousands)
ASSETS
Cash and due from banks $ 3,014 $ 4,032
Interest-bearing deposits with other banks 38 101
Federal funds sold 5,650 1,550
Securities available for sale 18,472 13,088
Investment securities (estimated market
value of $1,793 and $1,937) 1,746 1,897
Net loans receivable 27,300 25,703
Premises and equipment 1,459 1,422
Accrued interest and other assets 660 533
---------- ----------
TOTAL ASSETS $ 58,339 $ 48,326
========== ==========
LIABILITIES
Deposits:
Noninterest-bearing demand $ 7,383 $ 6,532
Interest-bearing demand 12,249 8,250
Money market 4,864 5,045
Savings 10,228 9,324
Time 16,722 13,752
---------- ----------
Total deposits 51,446 42,903
Other borrowings 1,847 677
Accrued interest and other liabilities 265 231
---------- ----------
TOTAL LIABILITIES 53,558 43,811
---------- ----------
STOCKHOLDERS' EQUITY
Common stock, no par value;
1,000,000 shares authorized,
451,869 issued and outstanding 1,412 1,284
Surplus 2,479 1,611
Retained earnings 811 1,567
Net unrealized gain on securities 79 53
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 4,781 4,515
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 58,339 $ 48,326
========== ==========
See accompanying notes to the consolidated financial statements.
<PAGE>
4
<TABLE>
<CAPTION>
Tri-State 1st Bank, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
Net Unrealized Total
Common Retained Gain on Comprehensive Stockholders'
Stock Surplus Earnings Securities 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 302 302 302
Cash dividend ($.14 per share) (62) (62)
Stock dividend 128 868 (996) -
Other comprehensive income:
Unrealized gain on available
for sale securities 26 26 26
--------
Comprehensive income $ 328
========
--------- --------- -------- --------- ---------
Balance, June 30, 1998 $ 1,412 $ 2,479 $ 811 $ 79 $ 4,781
========= ========= ======== ========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
5
<TABLE>
<CAPTION>
Tri-State 1st Bank, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
-------- -------- -------- --------
(In Thousands, Except (In Thousands, Except
Per Share Amounts) Per Share Amounts)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 668 $ 629 $ 1,311 $ 1,218
Interest-bearing deposits
with other banks 1 1 2 2
Federal funds sold 91 33 148 55
Investment securities:
Taxable 170 122 316 245
Exempt from federal income tax 77 56 147 110
-------- -------- -------- --------
Total interest income 1,007 841 1,924 1,630
-------- -------- -------- --------
INTEREST EXPENSE
Deposits 408 319 768 618
Other borrowings 19 4 31 8
-------- -------- -------- --------
Total interest expense 427 323 799 626
-------- -------- -------- --------
NET INTEREST INCOME 580 518 1,125 1,004
Provision for loan losses 10 21 33 29
-------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 570 497 1,092 975
-------- -------- -------- --------
OTHER OPERATING INCOME
Service fees on deposit accounts 80 60 148 117
Investment security losses - (3) - (3)
Other 36 21 92 56
-------- -------- -------- --------
Total other operating income 116 78 240 170
-------- -------- -------- --------
OTHER OPERATING EXPENSE
Salaries and employee benefits 223 176 454 352
Occupancy 49 42 94 86
Furniture and equipment 40 29 76 57
Federal deposit insurance premiums 2 1 3 2
Other 159 147 323 287
-------- -------- -------- --------
Total other operating
expense 473 395 950 784
-------- -------- -------- --------
Income before income taxes 213 180 382 361
Income taxes 45 41 80 85
-------- -------- -------- --------
NET INCOME $ 168 $ 139 $ 302 $ 276
======== ======== ======== ========
EARNINGS PER SHARE
Basic $ 0.37 $ 0.31 $ 0.67 $ 0.61
Diluted $ 0.37 $ 0.31 $ 0.67 $ 0.61
</TABLE>
See the accompanying notes to the consolidated financial statements.
<PAGE>
6
<TABLE>
<CAPTION>
Tri-State 1st Bank, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
1998 1997
---------- ----------
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 302 $ 276
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 33 29
Depreciation and amortization, net 79 97
Increase in accrued interest receivable (88) (47)
Increase (decrease) in accrued interest payable 20 (4)
Other (26) (29)
---------- ----------
Net cash provided by operating activities 320 322
---------- ----------
INVESTING ACTIVITIES
Securities available for sale:
Proceeds from sales - 348
Proceeds from principal repayments and maturities 2,000 1,805
Purchases of securities (7,347) (2,334)
Investment securities:
Proceeds from principal repayments and maturities 133 28
Net loan originations (1,630) (2,018)
Acquisition of premises and equipment (108) (70)
Proceeds from sale of real estate owned - 54
---------- ----------
Net cash used for investing activities (6,952) (2,187)
---------- ----------
FINANCING ACTIVITIES
Net increase in deposits 8,543 1,940
Increase in securities sold under agreement to repurchase 1,224 -
Principal payments on other borrowings (54) (50)
Cash dividends paid (62) -
---------- ----------
Net cash provided by (used for) financing act 9,651 1,890
---------- ----------
Increase (decrease) in cash and cash equivalents 3,018 25
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,683 5,577
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,702 $ 5,602
========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
7
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.
NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, Statement No. 131 "Disclosures about Segments of an Enterprise
and Related Information" was issued. This statement establishes standards
for the way public companies report information about operating segments in
interim financial reports issued to stockholders. It also establishes
standards for related disclosures about products and services, geographic
areas and major customers. The statement defines an operating segment as a
component of an enterprise that generates revenue and incurs expense, whose
operating results are reviewed by the chief operating decision maker in the
determination of resource allocation and performance, and for which discrete
financial information is available. This statement is effective for fiscal
years beginning after December 15, 1997, however, it does not require
disclosure in interim reporting in the year of initial application.
In January 1998, Statement of Financial Accounting Standards No. 132,
"Employers' Disclosure About Pensions and Other Post-Retirement Benefits,"
was issued. This standard will require certain footnote disclosure
requirements related primarily to defined benefit pension and other retiree
benefits. Implementation of this standard is required for fiscal years
beginning after December 15, 1997.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The statement provides accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, by requiring the recognition of
those items as assets or liabilities in the statement of financial position,
recorded at fair value. Statement No. 133 precludes a held-to-maturity
security from being designated as a hedged item, however, at the date of
initial application of this statement, an entity is permitted to transfer any
held-to-maturity security into the available-for-sale or trading categories.
The unrealized holding gain or loss on such transferred securities shall be
reported consistent with the requirements of Statement No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." Such transfers do
not raise an issue regarding an entity's intent to hold other debt securities
to maturity in the future. This statement applies prospectively for all
fiscal quarters of all years beginning after June 15, 1999. Earlier adoption
is permitted for any fiscal quarter that begins after the issue date of this
statement.
<PAGE>
8
RISK ELEMENTS
The following schedule presents the non-performing assets at June 30, 1998
and December 31, 1997.
June 30, December 31,
1998 1997
---------- ----------
(In Thousands)
Non-performing loans
Loans past due 90 days
or more $ 86 $ 102
Nonaccrual loans - -
Impaired loans - -
---------- ----------
Total non-performing
loans 86 102
---------- ----------
Other non-performing assets
Other real estate owned - -
Repossessed assets - -
---------- ----------
Total other non-performing
assets - -
---------- ----------
Total non-performing
assets $ 86 $ 102
========== ==========
Non-performing loans as a
percentage of total loans 0.31 % 0.39 %
Non-performing assets as a
percentage of total loans and
other non-performing assets 0.31 % 0.39 %
On June 30, 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 $86,000, a decrease of $16,000
or 15.7% from December 31, 1997 totals. Combined non-performing loans and
other non-performing assets on June 30, 1998, represented 0.31% of total
loans which was 0.39% at year-end 1997. There are three loans classified as
non-performing. Two of the loans are secured by real estate properties and
the third is secured with a vehicle. As a part of management's ongoing
assessment of its loan portfolio, there has been no allowance made for losses
on these three loans because in the opinion of management the loans are fully
secured and should not result in any loss to the Bank.
<PAGE>
9
<TABLE>
<CAPTION>
Exhibit 11
Tri-State 1st Bank, Inc. and Subsidiary
Statement Re Computation of Per Share Earnings
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Weighted average common shares used to calculate
basic earnings per share 451,869 451,869 451,869 451,869
Common stock equivalents (stock options) used to
calculate diluted earnings per share 1,394 - 1,394 -
-------- -------- -------- --------
Weighted average common shares and common stock
equivalents used to calculate diluted earnings
per share 453,263 451,869 453,263 451,869
======== ======== ======== ========
Net income 168 139 302 276
Earnings per share:
Basic $ 0.37 $ 0.31 $ 0.67 $ 0.61
Diluted $ 0.37 $ 0.31 $ 0.67 $ 0.61
</TABLE>
<PAGE>
10
Tri-State 1st Bank, Inc. and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Total Assets on June 30, 1998, were $58,339,000 and had increased
approximately $10 million over the $48,326,000 reported as of December 31,
1997. This is a 20.7% increase in assets for the six month period. During
the same period, Federal Funds Sold increased $4,100,000 or 264.5% to
$5,650,000; Total Securities increased $5,233,000 or 34.9% to $20,218,000;
and the Net Loans of $27,300,000 reflect a $1,597,000 or 6.2% increase. Cash
and Due from Banks decreased $1,018,000 to $3,014,000, while Premises and
Equipment grew by $37,000 to $1,459,000 and Accrued Interest and Other Assets
increased $128,000 to $660,000.
Total Deposits on June 30, 1998, were $51,446,000 which was an increase since
December 31, 1997, of $8,543,000 or 19.9% from $42,903,000. Total
Stockholder Equity increased for the six month period by $266,000 or 5.9% to
$4,781,000.
The increase in Federal Funds Sold was significant. Management has generally
attempted to have available in funds between $2 million and $3 million in
order to meet the liquidity needs and loan demand of bank customers.
However, this range necessarily shifts upward as deposits increase and
therefore liquidity needs grow. At December 31, 1997, Federal Funds Sold
of $1,550,000 was below this range, while on June 30, 1998, the balance of
$5,650,000 was above the range. An extraordinary 19.9% increase in Deposits
was only partially offset by the 34.9% increase in Securities purchased and
the 6.2% increase in Net Loans. The remainder was retained in Federal Funds
Sold to meet deposit fluctuations.
The net increase in Investment Securities of $5,233,000 to $20,218,000 on
June 30, 1998, from $14,985,000 on December 31, 1997, is consistent with 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 guard against the 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 $5,384,000 or 41.1% increase in Securities Available for Sale and a
$151,000 or 8.0% decrease in the Securities Held to Maturity, after
replacement of matured and called securities during the six 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. <PAGE>
The demand for loans which meet the credit standards of the
Bank grew significantly for the period ended June 30, 1998, although not in
proportion to the $10,013,000 increase in Total Assets. The $1,597,000
growth in Loans for the six months, was primarily the result of increases
of $1,381,000 in Nonfarm, Nonresidential loans, and $135,000 and $133,000
in Construction loans, and State and Political Subdivision obligations,
respectively. Commercial and Industrial Loans were down $196,000 while
Consumer Loans were $92,000 higher.
The Allowance for Loan Losses increased $14,000 or 4.5% over the six month
period while loans increased 6.2%. 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 $37,000 increase in Premises and Equipment and $128,000 in Accrued
Interest and Other Assets over the six months since December 31, 1997, can be
attributed primarily to new equipment purchases, and prepaid tax and accrued
interest receivable on government and agency securities.
The growth of Deposits on June 30, 1998, of $8,543,000 was the result of an
increase in most deposit types. There were increases in Noninterest-Bearing
Demand which was up $851,000 or 13.0%, Interest Bearing Demand was up
$3,999,000 or 48.5%, Savings were up $904,000 or 9.7% and Time Deposits up
$2,970,000 or 21.6%. Money Market Accounts were down $181,000 or 3.6%.
Other Borrowings showed a $1,170,000 or 172.8% increase primarily as a result
of a new repurchase agreement arrangement with a customer at the New
Cumberland office. The two notes with the Federal Home Loan Bank were paid
down to $123,000 on June 30, 1998. A $34,000 increase in Accrued Interest
and Other Liabilities resulted primarily from growth in accrued interest on
larger balances in interest bearing deposits.
There was an increase in the Shareholders Equity of $266,000 on June 30,
1998. A transfer of $128,000 to Common Stock and $867,000 to Surplus from
Retained Earnings was the result of the 10% stock dividend declared by the
Board of Directors in May and payable in July. Consequently there was a net
decrease in the Net Retained Earnings of $755,000 or 48.2%. Excluding this
transfer, Net Retained Earnings increased $240,000 and there was an
improvement in the Net Unrealized Loss/Gain on Securities for the six months
of $26,000, from a gain of $53,000 to a gain of $79,000. A Net Unrealized
Gain or loss on Securities should be considered to be temporary in nature
since the change can be attributed 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 six month period.
<PAGE>
11
RESULTS OF OPERATIONS
Comparison of the six Months Ended June 30, 1998 to 1997
- --------------------------------------------------------
GENERAL
The Company had Net Income of $302,000 for the six months ended June 30,
1998. For the same period during 1997, the earnings were $276,000. The
increase of $26,000 is a 9.4% change over June 30, 1997.
NET INTEREST INCOME
The Net Interest Income for the six month period ended June 30, 1998, was up
$121,000 from the same six months of 1997 for an increase of 12.1%. The
principal reason for the amount of increase is that interest income rose at a
18.0% rate in the amount of $294,000 while interest expense increased by
27.6% but only $173,000. Loan and Fee Income was up $93,000 or 7.6% for the
period primarily as a result of the additional loans receivable during the
six months in 1998 compared with 1997. The earnings on Federal Funds Sold
was up $93,000 or 169.1% because balances were higher in this asset in 1998.
There was $108,000 more in interest income on securities in 1998, which
represents an increase of 30.4%. Interest Income on taxable securities was up
$71,000 or 29.0%, and income on securities exempt from federal income tax was
$37,000 or 33.6% greater.
The increase in Interest Expense on Deposits of 27.6% resulted from the fact
that much of the growth in Deposits came in interest bearing types of
deposits. Interest Expense on Deposits rose $150,000 or 24.3% and the cost
of Other Borrowings increased $23,000 or 287.5% because of interest paid on
repurchase agreement funds.
PROVISION FOR LOAN LOSSES
Based upon management's continuing evaluation of the loan portfolio, $33,000
was provided for loan losses over the first six months of 1998. This was
$4,000 or 13.8% greater than the provision for the like period of 1997. This
provision is made in order to maintain the Allowance for Loan Losses at an
appropriate level. Provisions for loans in the amount of $33,000 was made
because of the increase in the loans during the first six months of 1998.
The Net Interest Income after Provision for Loan Losses in 1998 was up
$117,000 or 12.0% over the same six months of 1997.
OTHER OPERATING INCOME
Other Operating Income showed a $70,000 or 41.2% increase through June 30,
1998 when compares with the six month period ended June 30, 1997. This
noninterest income increased to $240,000 for the first six months of 1998
compared with $170,000 on June 30, 1997. Service fees on deposit accounts
increased $31,000 or 26.5%, there were no losses on securities which was an
improvement of $3,000 over the first six months of 1997 and Other Income was
up $36,000 or 64.3%. Higher deposit levels, the absence of any sales of
securities, a substantial credit life insurance commission payment and a
refund from the Ohio Workman's Compensation Fund accounts for this increase
in Other Operating Income.
OTHER OPERATING EXPENSE
Other Operating Expense was $166,000 or 21.2% higher on June 30, 1998, than
on the same date in 1997. Salaries of employees and benefits increased
$102,000 or 29.0% with the hiring of additional staff over the past twelve
months to meet the growing operating needs of the Bank, staffing the new
office at New Cumberland, and salary increases paid to attract and retain an
experienced and capable staff. Occupancy Expenses increased $8,000 or 9.3% and
Furniture and Equipment Expenses increased $19,000 or 33.3% which were
impacted by the New Cumberland office and equipment additions. Other
Expenses rose $36,000 or 12.5% due to an increase in a variety of expense
categories related to growth of activity and volumes such as the credit
bureau, postage and freight, telephone, loan expenses, merchant bank cards
and the Ohio Franchise Tax.
INCOME TAX EXPENSE
Income Taxes decreased $5,000 or -5.9% for first six months of 1998 compared
with the same six month period in 1997. The decline occurred in spite of a
$21,000 or 5.8% increase in pre-tax income. A greater portion of the
security portfolio invested in tax-exempt securities in 1998 than in 1997
resulted in the relatively greater increase in Net Income of 9.4% compared to
the 5.8% increase in taxable income of the company.
Earnings per share of $.67 for the six month period ended June 30, 1998, was
$.06 or 9.8% greater than the $.61 per share earned for the first six months
of 1997.
Comparison of the Three Months Ended June 30, 1998 to 1997
GENERAL
The Company had Net Income of $168,000 for the three months ended June 30,
1998. When compared with the same three month period in 1997, there was a
$29,000 increase in Net Income from $139,000 for a 20.9% gain.
NET INTEREST INCOME
Net Interest Income for the three month period ended June 30, 1998 was
$62,000 or 12.0% greater when compared with the same three month period in
1997. This resulted from a $166,000 or 19.7% increase in interest income
while interest expense increased only $104,000 or 32.2% in the comparable
period of the previous year. Interest on Loans and Fees was up $39,000 or
6.2% to $668,000 for the three months of 1998 compared with 1997. This
increase is consistent with increased balances on loans over the prior year
and also reflects some decrease in average loan yields. Income on Federal
Funds Sold for the three month period increased $58,000 or 175.8% as a result
of the higher balances earning interest during the current three month
period. Higher balances were also the reason for a $69,000 increase in
Investment Securities interest income which can be accounted for by increases
of $48,000 or 39.3% in Taxables and a $21,000 or 37.5% in securities exempt
from federal income tax. The increase in interest expense on deposits was
$89,000 or 27.9% while interest expense of Other Borrowings increased $15,000
or 375.0% because of a repurchase agreement. The increase in interest
expense on Deposits and Other Borrowings was a product of the growth of
deposits over the three month period. There was no significant change in
rates of interest paid on customer deposits.
<PAGE>
12
PROVISION FOR LOAN LOSSES
After careful evaluation by management of the composition of the loan
portfolio and considering the growth of loans outstanding, $10,000 was
allotted as the Provision for Loan Losses during the three month period ended
June 30, 1998. This is $11,000 less than the amount provided during the same
three month period in 1997. This resulted in a $570,000 Net Interest Income
after loan loss provision which was $73,000 or 14.7% higher than in the same
three month period in 1997.
OTHER OPERATING INCOME
For the three month period ended June 30, 1998, the Other Operating Income
was up $38,000 or 48.7% over the same period in 1997. The service fee income
on deposits was up $20,000 or 33.3% when compared to the same period of the
prior year. The increase in deposits is a major contributor to the rise in
service fees. There were no security losses taken in the three month period
compared to a $3,000 loss in the second quarter of 1997, and Other Income
rose $15,000 or 71.4%. An increase in revenues from ATM machine and card
activity accounted for a large portion of the increase.
OTHER OPERATING EXPENSE
For the three months ended June 30, 1998, Other Operating Expense showed a
$78,000 or 19.8% increase over the like period in 1997. Salaries and
employee benefits were up $47,000 or 26.7% which is less than the 29.0%
increase for the entire first six months of 1998. Additional staff has been
added with the acquisition of the New Cumberland office in the third
quarter of 1997, and some staff for the Wal-Mart office which is scheduled to
open in the third quarter of 1998 were on the payroll in June, 1998. New
positions have also been created at the Bank since the second quarter of 1997.
Occupancy and Furniture and Equipment expenses were up $7,000 and $11,000
respectively with the addition of the New Cumberland office. Other Expense
was up $12,000 of 8.2% for the second quarter of 1998 compared with the same
period in 1997.
This increase can be attributed principally to expenses in connection with
growth of volumes and activities of the Bank.
INCOME TAX EXPENSE
Income before income taxes was $33,000 or 18.3% higher on June 30, 1998 over
the same period in 1997. Income taxes were $4,000 or 9.8% higher. Taxes
represented a smaller percent of the total income, so the Net Income
increased 20.9% from 1997. The Earnings per Share were up $.06 or 19.35%
from $.31 for the quarter on June 30, 1997, to $.37 on June 30, 1998.
<PAGE>
13
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 six month period ended
June 30, 1998, shows an increase from December 31, 1997, in Cash and Cash
Equivalency of $3,018,000 to $8,702,000. Purchases of new securities after
allowing for proceeds from principal repayment used up $7,347,000 and Net
Loan Originations used another $1,630,000. This was offset by a $9,767,000
net increase in deposits and repurchase agreements and $2,000,000 from the
proceeds of principal repayments and maturates of securities.
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.
In May of 1998, the Board of Directors of the Company declared a 10% stock
dividend to stockholders of record on June 26, 1998, payable on July 10,
1998. This event should have no material effect on the liquidity,
capital resources or operations of the Company in the opinion of management.
<PAGE>
14
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 1998, 41,069 shares of Tri-State 1st Bank shares were issued to the
security holders of record on June 26, 1998, as a result of a 10% stock
dividend declared by the Board of Directors on May 28, 1998.
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 re computation of per E - 1
share earnings
27 Financial data schedule E - 2
(b)Reports on Form 8-K.
None.
<PAGE>
15
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 and thereunto duly authorized.
Tri-State 1st Bank, Inc.
(Registrant)
Date: August 14, 1998 By:\s\ Charles B. Lang
_________________________________
Charles B. Lang
President and Chief Executive Officer
Date: August 14, 1998 By:\s\ Keith R. Clutter
_________________________________
Keith R. Clutter
Secretary
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