<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, 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 November 12, 1998 there were 451,869 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, 1998
and December 31, 1997 3
Consolidated Statement of Income for the three months
ended September 30, 1998 and 1997 4
Consolidated Statement of Income for the nine months
ended September 30, 1998 and 1997 5
Consolidated Statement of Comprehensive Income for the
nine months ended September 30, 1998 and 1997 6
Consolidated Statement of Changes in Stockholders'
Equity for the nine months ended September 30, 1998 7
Consolidated Statement of Cash Flows for the nine
months ended September 30, 1998 and 1997 8
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II Other Information 17
Signatures 18
<PAGE>
TRI-STATE 1ST BANK, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
September 30, December 31,
1998 1997
-------- --------
(In thousands)
ASSETS
Cash and due from banks $ 3,033 $ 4,032
Interest-bearing deposits with other banks 9 101
Federal funds sold 1,800 1,550
Investment securities available for sale 19,878 13,088
Investment securities held to maturity
(estimated market value of $1,786 and $1,937) 1,721 1,897
Loans 28,077 26,012
Less allowance for loan losses 326 309
-------- --------
Net Loans 27,751 25,703
Premises and equipment 1,613 1,422
Accrued interest and other assets 937 533
-------- --------
TOTAL ASSETS $ 56,742 $ 48,326
======== ========
LIABILITIES
Deposits:
Noninterest - bearing demand $ 7,459 $ 6,532
Interest - bearing demand 11,465 8,250
Money market 4,634 5,045
Savings 9,826 9,324
Time 15,852 13,752
-------- --------
Total deposits 49,236 42,903
-------- --------
Securities sold under agreement to repurchase 1,964 500
Other borrowings 95 177
Accrued interest and other liabilities 415 231
-------- --------
TOTAL LIABILITIES 51,710 43,811
-------- --------
STOCKHOLDERS' EQUITY
Common stock, no par value; 1,000,000 shares
authorized; 451,869 and 410,800 issued
and outstanding 1,412 1,284
Surplus 2,479 1,611
Retained earnings 937 1,567
Accumulated other comprehensive income 204 53
-------- --------
TOTAL STOCKHOLDERS' EQUITY 5,032 4,515
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 56,742 $ 48,326
======== ========
See accompanying unaudited notes to the consolidated financial statements.
3
<PAGE>
TRI-STATE 1ST BANK, INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Three Months Ended
September 30,
-----------------------
1998 1997
--------- ---------
(In thousands)
INTEREST INCOME
Interest and fees on loans $ 690 $ 667
Interest-bearing deposits with other banks - -
Federal funds sold 45 27
Investment securities:
Taxable 210 131
Tax exempt 83 59
--------- ---------
Total interest income 1,028 884
--------- ---------
INTEREST EXPENSE
Deposits 409 343
Other borrowings 23 4
--------- ---------
Total interest expense 432 347
--------- ---------
NET INTEREST INCOME 596 537
Provision for loan losses 8 13
--------- ---------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 588 524
--------- ---------
NONINTEREST INCOME
Service fees on deposit accounts 76 59
Other 37 25
--------- ---------
Total noninterest income 113 84
--------- ---------
NONINTEREST EXPENSE
Salaries and employee benefits 274 199
Occupancy 52 44
Furniture and equipment 45 35
Other 184 145
--------- ---------
Total noninterest expense 555 423
--------- ---------
INCOME BEFORE INCOME TAXES 146 185
Income taxes 20 42
--------- ---------
NET INCOME $ 126 $ 143
========= =========
EARNINGS PER SHARE:
Basic $ 0.28 $ 0.32
Diluted 0.28 0.32
See accompanying unaudited notes to the consolidated financial statements.
4
<PAGE>
TRI-STATE 1ST BANK, INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Nine Months Ended
September 30,
------------------------
1998 1997
---------- ----------
(In thousands)
INTEREST INCOME
Interest and fees on loans $ 2,001 $ 1,885
Interest-bearing deposits with 2 2
Federal funds sold 193 82
Investment securities:
Taxable 526 376
Tax exempt 230 169
---------- ----------
Total interest income 2,952 2,514
---------- ----------
INTEREST EXPENSE
Deposits 1,177 961
Other borrowings 54 12
---------- ----------
Total interest expense 1,231 973
---------- ----------
NET INTEREST INCOME 1,721 1,541
Provision for loan losses 41 42
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 1,680 1,499
---------- ----------
NONINTEREST INCOME
Service fees on deposit accounts 224 176
Net loss on sale of securities - (3)
Other 129 81
---------- ----------
Total noninterest 353 254
---------- ----------
NONINTEREST EXPENSE
Salaries and employee benefits 728 551
Occupancy 146 130
Furniture and equipment 121 92
Other 510 434
---------- ----------
Total noninterest 1,505 1,207
---------- ----------
INCOME BEFORE INCOME TAXES 528 546
Income taxes 100 127
---------- ----------
NET INCOME $ 428 $ 419
========== ==========
EARNINGS PER SHARE:
Basic $ 1.01 $ 0.93
Diluted 1.00 0.93
See accompanying unaudited notes to the consolidated financial statements.
5
<PAGE>
TRI-STATE 1st BANK, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
Nine Months Ended
September 30,
------------------------
1998 1997
---------- ----------
(In thousands)
Net income $ 428 $ 419
Other comprehensive income:
Unrealized holding gains (losses) arising
during the period 229 77
---------- ----------
Other comprehensive income (loss) before tax 229 77
---------- ----------
Income tax expense (benefit) relating to other
comprehensive income (loss) 78 26
---------- ----------
Other comprehensive income (loss), net of tax 151 51
---------- ----------
Comprehensive income $ 579 $ 470
========== ==========
See accompanying unaudited notes to the consolidated financial statements.
6
<PAGE>
TRI-STATE 1ST BANK, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive
Income, Net Total
Common Retained of Income Stockholders'
Stock Surplus Earnings Taxes Equity
---------- ---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $ 1,284 $ 1,611 $ 1,567 $ 53 $ 4,515
Comprehensive income 428 151 579
Cash dividends ($.14 per share) (62) (62)
Ten percent stock dividend 128 868 (996) -
---------- ---------- ---------- ---------- ----------
Balance, September 30, 1998 $ 1,412 $ 2,479 $ 937 $ 204 $ 5,032
========== ========== ========== ========== ==========
</TABLE>
See accompanying unaudited notes to the consolidated financial statements.
7
<PAGE>
TRI-STATE 1ST BANK, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
------------------------
1998 1997
---------- ----------
(In thousands)
OPERATING ACTIVITIES
Net income $ 428 $ 419
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 41 42
Depreciation, amortization, and accretion, net 87 150
Investment securities loss, net - 3
Decrease (increase) in accrued interest receivable (249) (59)
Increase (decrease) in accrued interest payable 65 64
Other, net (114) (50)
---------- ----------
Net cash provided by operating
activities 258 569
---------- ----------
INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from maturities and repayments 3,632 1,823
Purchases (10,183) (4,321)
Proceeds from the sale of securities - 348
Investment securities held to maturity:
Proceeds from maturities and repayments 177 250
Net increase in loans (2,077) (2,592)
Premium paid on deposits - (136)
Purchases of premises and equipment (301) (262)
Proceeds from sale of real estate owned - 54
---------- ----------
Net cash used for investing
activities (8,752) (4,836)
---------- ----------
FINANCING ACTIVITIES
Net increase in deposits 6,333 5,058
Increase in securities sold under agreement to
repurchase 1,464 -
Principal payments on other borrowings (82) (76)
Cash dividends (62) (55)
---------- ----------
Net cash provided by financing
activities 7,653 4,927
---------- ----------
Increase (decrease) in cash and cash
equivalents (841) 660
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 5,683 5,577
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,842 $ 6,237
========== ==========
See accompanying unaudited notes to the consolidated financial statements.
8
<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.
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.
9
<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, 1998, were $56,742,000 which was an increase of
$8,416,000 from December 31, 1997. This is a 17.4% increase in assets for the
nine month period. During the same period, Federal Funds Sold increased
$250,000 or 16.1%; Total Securities increased $6,614,000 or 44.1%; and there
was an increase in Net Loans of $2,065,000 or 7.9%. Cash and Due from Banks
decreased $999,000, while Premises and Equipment grew by $191,000 and Accrued
Interest and Other Assets increased $404,000.
Total Deposits on September 30, 1998, were $49,236,000 which was an increase
since December 31, 1997, of $6,333,000 or 14.8%. The total increase in
Stockholder Equity for the nine month period was $517,000 or 11.5% to
$5,032,000.
The increase in Federal Funds Sold was not significant and the $1.8 million
level is in an appropriate range. Management strives to have available in
Funds Sold between $1.5 million and $3 million to meet Bank liquidity needs
and loan demand of bank customers.
The $6.6 million net increase in Investment Securities from 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 $6,790,000 or 51.9% increase in Securities Available for Sale and
a $176,000 or 9.3% 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 that meet the credit standards of the Bank grew
significantly for the period ended September 30, 1998, but not as rapidly as
the increase in Total Assets. The growth in Loans for the nine months can be
attributed primarily to increases in Farmland loans, first mortgage loans for
1 to 4 family residential properties, real estate loans secured with non-farm
nonresidential real estate and Consumer loans. Outstanding balances for Home
Equity loans, Commercial and Industrial loans, Second Mortgage loans and loans
to state and political subdivisions all showed decreases.
10
<PAGE>
The Allowance for Loan Losses increased $17,000 or 5.5% over the nine month
period while loans were increasing 7.9%. 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 13.4% increase in Premises and Equipment can be attributed primarily to
new equipment purchases relating to the opening of the new Wal-Mart office.
The 75.8% increase in Accrued Interest and Other Assets over the nine months
since December 31, 1997, can be attributed to accrued interest receivable on
greater balances on loans and securities held by the Bank, and a $154,000
Automated Clearing House (ACH) suspense item that settled October 1, 1998.
The growth of Deposits through September 30, 1998, by $6,333,000 was the
result of an increase in nearly all types of deposits. Non-Interest Bearing
Demand Accounts were up $927,000 or 14.2%, Interest Bearing Demand Accounts
were up $3,215,000 or 39.0%, Savings were up $502,000 or 5.4% and Time
Deposits were up $2,100,000 or 15.3%. Only Money Market Accounts were down
$411,000 or 8.1%.
Securities Sold under Agreement to Repurchase showed a $1,464,000 or 292.8%
increase although Other Borrowings declined $82,000 as two notes with the
Federal Home Loan Bank were paid down to $95,000 on September 30, 1998. A
$184,000 increase in Accrued Interest and Other Liabilities resulted primarily
from growth in accrued interest on larger balances in interest bearing
deposits and increases in deferred taxes payable which related to an increase
in the unrealized gain on investment securities available for sale.
There was an increase in the Shareholders Equity of $517,000 on September 30,
1998 from December 31, 1997. A transfer of $128,000 to Common Stock and
$868,000 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 $630,000
or -40.2%. Excluding this transfer, Net Retained Earnings increased $366,000
and there was an improvement in the Net Unrealized Loss/Gain on Securities for
the nine months of $151,000, to an unrealized gain on the market value of
securities, net of tax of $204,000. 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. A
decrease in interest rates has resulted in a strengthening of the bond market
since December 31, 1997.
11
<PAGE>
RESULTS OF OPERATIONS
Comparison of the Nine Months Ended September 30, 1998 to 1997
- --------------------------------------------------------------
GENERAL
The Corporation had Net Income of $428,000 for the nine months ended September
30, 1998. For the same period during 1997, the earnings were $419,000. The
increase of $9,000 is a 2.1% change over the nine months ended September 30,
1997. The increase in Net Income is attributable to increases in net interest
income, total non-interest income and a decrease in Income Taxes, which offset
the increase in Total Non-Interest Expense.
NET INTEREST INCOME
The Net Interest Income for the nine month period ended September 30, 1998,
was up $180,000 from the same period of 1997 for an increase of 11.7%. The
principal reason for this increase is that interest income rose at a 17.4%
rate, but in the amount of $438,000, while interest expense increased by
26.5%, but only $258,000. Interest and Fees on Loans was up $116,000 or 6.2%
because of more loans receivable during the nine months in 1998 compared with
1997. The earnings on Federal Funds Sold were up $111,000 or 135.4% because
of the higher average balances maintained in 1998. There was $211,000 more
in interest income on securities in 1998, which represents an increase of
38.7%. Interest Income on taxable securities was up $150,000 or 40.0%, and
income on securities exempt from federal income tax was $61,000 or 36.1%
greater.
A greater portion of the growth in deposits was in Interest Bearing accounts
as opposed to the Non-Interest Bearing accounts, which in addition to large
growth of deposits resulted in a significant change in Interest Expense.
Interest Expense on Deposits rose $216,000 or 22.5% and the cost of Other
Borrowings increased $42,000 or 350.0% because of interest paid on newly
acquired repurchase agreement funds.
PROVISION FOR LOAN LOSSES
Based upon management's continuing evaluation of the loan portfolio, $41,000
was provided for loan losses over the first nine months of 1998. This was
$1,000 or 2.4% less 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. A provision for loans in the amount of $41,000 was made
because of an increase in the loans during the first nine months of 1998. The
Net Interest Income after Provision for Loan Losses in 1998 was up $181,000 or
12.1% over the same nine months of 1997.
12
<PAGE>
NON-INTEREST INCOME AND EXPENSE
Non-Interest Income showed a $99,000 or 39.0% increase through September 30,
1998 when compared with the nine month period ended September 30, 1997.
Service fees on deposit accounts increased $48,000 or 27.3%, there were no
losses on securities as compared with a $3,000 loss in the first nine months
of 1997 and Other Income was up $48,000 or 59.3%. Higher deposit levels, a
substantial credit life insurance commission payment and a refund from the
Ohio Workman's Compensation Fund accounts, coupled with greater activity
related to ATMs accounted for most of this increase in Non-Interest Income.
Non-Interest Expense was $298,000 or 93.5% higher on September 30, 1998, than
on the same date in 1997. Salaries of employees and benefits increased
$177,000 or 32.1% with the hiring of additional staff over the past twelve
months to meet the growing operating needs of the Bank, staffing new offices
at New Cumberland and the Wal-Mart Superstore in-store branch, and salary
increases paid to attract and retain an experienced and capable staff.
Occupancy Expenses increased $16,000 or 12.3% and Furniture and Equipment
Expenses increased $29,000 or 31.5% which were both impacted by two new
offices and equipment acquisitions. Other Expenses rose $76,000 or 17.5% due
to an increase in a variety of expense categories related to growth of banking
activity levels 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 $27,000 or 21.3% for first nine months of 1998 compared
with the same nine month period in 1997. This decrease occurred not only
because of a decrease of $18,000 or 3.3% in pre-tax income, but also a greater
portion of the security portfolio was invested in tax-exempt securities in
1998 than in 1997. This resulted in the 2.1% or $9,000 increase in net income
for the corporation.
Basic earnings per share of $1.01 for the nine month period ended
September 30, 1998, were $.08 or 8.6% greater than the $.93 per share earned
for the first nine months of 1997 after adjusting for the 10% stock dividend
paid in July of 1998.
13
<PAGE>
Comparison of the Three Months Ended September 30, 1998 to 1997
- ---------------------------------------------------------------
GENERAL
The Corporation had Net Income of $126,000 for the three months ended
September 30, 1998. When compared with the same three month period in 1997,
there was a $17,000 decrease in Net Income from $143,000 for an 11.9% decline.
This decrease is the result of increases in Net Interest Income and Non-
Interest Income failing to match the rise in the cost of Non-Interest Expense.
Additional costs such as those associated with opening new office locations
have been incurred currently in anticipation of future growth which should
offset these additional expenses in the future.
NET INTEREST INCOME
Net Interest Income for the three month period ended September 30, 1998 was
$59,000 or 11.0% greater when compared with the same three month period in
1997. This resulted from a $144,000 or 16.3% increase in interest income
while interest expense increased only $85,000 or 24.5% in the comparable
period of the previous year. Interest on Loans and Fees was up $23,000 or
3.4% for the three months of 1998 compared with 1997. This increase is
consistent with increased balances on loans over the prior year but also
reflects a decrease in average loan yields. Income on Federal Funds Sold for
the three month period increased $18,000 or 66.7% as a result of the higher
balances earning interest during the current three month period. Higher
balances were also the reason for a $103,000 increase in Investment Securities
interest income, which consists of increases of $79,000 or 60.3% in Taxable
and a $24,000 or 40.7% in securities exempt from federal income tax.
The increase in interest expense on deposits was $66,000 or 19.2% while
interest expense of Other Borrowings increased $19,000 or 475.0% because of
new funds in repurchase agreements. The increase in interest expense on
Deposits and Other Borrowings was a product of the growth of deposits over the
three month period. Changes in rates of interest paid on customer deposits
had no significant impact on the increase in interest expense.
PROVISION FOR LOAN LOSSES
After careful evaluation by management of the composition of the loan
portfolio and considering the growth of loans outstanding, $8,000 was allotted
as the Provision for Loan Losses during the three month period ended
September 30, 1998. This is $5,000 less than the amount provided during the
same three month period in 1997. This resulted in a $588,000 Net Interest
Income, after loan loss provision, which was $64,000 or 12.2% higher than in
the same three month period in 1997.
14
<PAGE>
NON-INTEREST INCOME AND EXPENSE
For the three month period ended September 30, 1998, Non-Interest Income was
up $29,000 or 34.5% over the same period in 1997. The service fee income on
deposits was up $17,000 or 28.8% when compared to the same period of the prior
year. An increase in revenues from ATM machines accounted for most of the
increase in Other Income in the amount of $12,000 or 48.0%.
For the three months ended September 30, 1998, Non-Interest Expense had a
$132,000 or 31.2% increase over the like period in 1997. Salaries and
employee benefits were up $75,000 or 37.7%. Additional staff positions and
employment of staff for the Wal-Mart office, which opened in September,
combined with increases after annual salary reviews and the granting of some
one-time bonuses account for most of this increase.
Occupancy and Furniture and Equipment expenses were up $8,000 or 18.2% and
$10,000 or 28.6% respectively with the addition of the Wal-Mart office. Other
Expense was up $39,000 of 26.9% for the third quarter of 1998 compared with
the same period in 1997.
This increase can be attributed principally to expenses in connection with
growth of customer volumes and services of the Bank as the market area it
serves has expanded.
INCOME TAX EXPENSE
Income before income taxes was down $39,000 or 21.1% on September 30, 1998
over the same period in 1997. Income taxes were $22,000 or 52.4% lower. The
relative decline in taxable income and the greater portion of the investment
portfolio in tax exempt securities resulted in less income tax due. Earnings
per Share were down $.04 or 12.5% for the quarter ended September 30, 1998,
compared to the third quarter of 1997, after adjusting for the 10% stock
dividend in July of 1998.
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 maturaties 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, 1998, shows a decrease from December 31, 1997, in Cash and Cash
Equivalents of $841,000 to $4,842,000. Purchases of new securities after
allowing for proceeds from principal repayment used up $10,183,000 and Net
Loan originations used another $2,077,000. This was offset in part by a
$6,333,000 net increase in deposits and a net increase in repurchase agreement
funds of $1,464,000.
15
<PAGE>
Management is not aware of any known trends, events or uncertainties that
would have a material effect on the liquidity, capital resources or operations
of the Corporation. 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.
The number of shares outstanding increased to 451,869 on that date from
410,800 shares. This event should have no material effect on the liquidity,
capital resources or operations of the Company in the opinion of management.
On September 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 non-accrual status because of collateral
considerations or collection status, and unimpaired loans, which represent
non-accrual commercial loan types, amounted to $249,000, an increase of
$147,000 or 144.1% from December 31, 1997 totals. Combined non-performing
loans and other non-performing assets on September 30, 1998, represented 0.88%
of total loans compared with 0.39% at year-end 1997. All non-performing
assets consisted of eight non-performing loans. Three of the loans are
commercial loans secured with commercial real estate and total $174,165. One
of the three loans, which totals $119,621, has a 75% SBA guarantee. The
collateral of a second commercial real estate loan in the amount of $24,544 is
under option to purchase. Two of the remaining loans are secured with
residential 1-4 family dwellings and they total $71,450. The remaining three
loans which total $3,007 are consumer loans and of that amount all but $158 is
secured with vehicles as collateral. As a part of management's ongoing
assessment of its loan portfolio, an allowance has been made for losses on
these eight loans in the amount of $12,000 because in the opinion of
management the loans are not fully secured and could result in a loss to the
Bank.
RISK ELEMENTS
The following schedule presents the non-performing assets at September 30,
1998, and December 31, 1997.
September 30, December 31,
1998 1997
---------- ----------
(In thousands)
Non-accrual loans $ - $ -
Loans past due 90 days or more 249 102
Restructured loans - -
---------- ----------
Total non-performing loans 249 102
Other real estate owned - -
---------- ----------
Total non-performing assets $ 249 $ 102
========== ==========
YEAR 2000 COMPLIANCE
The Company has been actively working on the Year 2000 computer problem and
has established an overall plan to address systems-related Year 2000 issues.
The plan calls for either the modification to, or replacement of, the
Company's business system applications. The Company, in conjunction with its
vendors, is testing its computer systems and requiring representations from
its vendors that the products provided are or will be Year 2000 compliant.
The Company has given Year 2000 activities highest priority throughout 1997
and 1998 and is targeting to have all major systems repaired by year end. In
the unlikely event that the systems tested do not, in fact, operate properly
when the year 2000 does arrive, all customer accounts, deposits and loans, as
well as accounting systems, will be maintained manually to ensure business
continuation while systems are being corrected. The Company does not expect
material expenditures to be incurred to address the Year 2000 issue. Based
upon current estimates, the Company does not expect to incur more than $50
thousand (pre-tax) in Year 2000 remediation expenses.
16
<PAGE>
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. None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits None
(b) Reports on Form 8-K None
17
<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 and thereunto duly authorized.
Tri-State 1st Bank, Inc.
(Registrant)
Date: By:
----------------------------------
November 13, 1998 Charles B. Lang
President and Chief Executive Officer
Date: By:
----------------------------------
November 13, 1998 Keith R. Clutter
Secretary
18
<PAGE>
Exhibit 11
Tri-State 1st Bank, Inc.
Statement ReComputation of Per Share Earnings
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Weighted average common shares used
to calculate basic earnings per share 447,893 451,869 423,330 451,869
Common stock equivalents (stock
options) used to calculate diluted
earnings per share 4,250 - 4,250 -
----------- ----------- ----------- -----------
Weighted average common shares and
common stock equivalents used to
calculate diluted earnings per share 452,143 451,869 427,580 451,869
=========== =========== =========== ===========
Net Income 126 143 428 419
Earnings per share:
Basic $ 0.28 $ 0.32 $ 1.01 $ 0.93
Diluted 0.28 0.32 1.00 0.93
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1998
<CASH> 3,033
<INT-BEARING-DEPOSITS> 9
<FED-FUNDS-SOLD> 1,800
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 19,878
<INVESTMENTS-CARRYING> 1,721
<INVESTMENTS-MARKET> 1,786
<LOANS> 28,077
<ALLOWANCE> 326
<TOTAL-ASSETS> 56,742
<DEPOSITS> 49,236
<SHORT-TERM> 2,059
<LIABILITIES-OTHER> 415
<LONG-TERM> 0
0
0
<COMMON> 1,412
<OTHER-SE> 3,620
<TOTAL-LIABILITIES-AND-EQUITY> 56,742
<INTEREST-LOAN> 2,001
<INTEREST-INVEST> 756
<INTEREST-OTHER> 195
<INTEREST-TOTAL> 2,952
<INTEREST-DEPOSIT> 1,177
<INTEREST-EXPENSE> 1,231
<INTEREST-INCOME-NET> 1,721
<LOAN-LOSSES> 41
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,505
<INCOME-PRETAX> 528
<INCOME-PRE-EXTRAORDINARY> 528
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 428
<EPS-PRIMARY> 1.01
<EPS-DILUTED> 1.00
<YIELD-ACTUAL> 4.30
<LOANS-NON> 0
<LOANS-PAST> 249
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 309
<CHARGE-OFFS> 38
<RECOVERIES> 14
<ALLOWANCE-CLOSE> 326
<ALLOWANCE-DOMESTIC> 326
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 261
</TABLE>