SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] TRANSITION REPORT UNDER 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
---------------------------
(Address of principal executive offices)
(330)385-9200
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(Issuer's telephone number)
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 October 12, 1999 there were 567,784 shares outstanding of the issuer's
class of common stock.
Transitional small business disclosure format: Yes No X
----- -----
<PAGE>
TRI-STATE, 1ST BANK, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-QSB
Page
Reference
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Part I - Financial Information
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheet 3
Consolidated Statement of Income 4-5
Consolidated Statement of Changes in Stockholders'
Equity 6
Consolidated Statement of Cash Flows 7
Notes to Consolidated Financial Statements 8-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-17
Part II Other Information 18
Signatures 19
<PAGE>
TRI-STATE 1ST BANK, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
September 30, December 31,
1999 1998
---------- ----------
(In thousands)
ASSETS
Cash and due from banks $ 4,900 $ 4,319
Interest-bearing deposits with other banks 95 80
Federal funds sold 2,000 1,100
Investment securities available for sale 21,190 19,958
Investment securities held to maturity
(estimated market value of $1,669 and $1,765) 1,653 1,700
Loans 30,679 28,939
Less allowance for loan losses 351 340
-------- --------
Net Loans 30,328 28,599
Premises and equipment 1,956 1,850
Accrued interest and other assets 870 697
-------- --------
TOTAL ASSETS $ 62,992 $ 58,303
======== ========
LIABILITIES
Deposits:
Noninterest - bearing demand $ 7,968 $ 8,362
Interest - bearing demand 12,861 12,088
Money market 4,636 4,599
Savings 10,993 10,297
Time 18,962 16,003
-------- --------
Total deposits 55,420 51,349
Securities sold under agreement to repurchase 2,245 1,500
Other borrowings - 67
Accrued interest and other liabilities 273 309
-------- --------
TOTAL LIABILITIES 57,938 53,225
-------- --------
STOCKHOLDERS' EQUITY
Common stock, no par value; 1,000,000 shares
authorized; 567,784 and 565,159 issued
and outstanding 3,945 3,890
Retained earnings 1,349 990
Accumulated other comprehensive income (loss) (240) 198
-------- --------
TOTAL STOCKHOLDERS' EQUITY 5,054 5,078
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 62,992 $ 58,303
======== ========
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,
-----------------------
1999 1998
--------- ---------
(In thousands)
INTEREST INCOME
Interest and fees on loans $ 736 $ 690
Interest-bearing deposits with other banks 1 -
Federal funds sold 32 45
Investment securities:
Taxable 184 210
Tax exempt 122 83
--------- ---------
Total interest income 1,075 1,028
--------- ---------
INTEREST EXPENSE
Deposits 408 409
Other borrowings 24 23
--------- ---------
Total interest expense 432 432
--------- ---------
NET INTEREST INCOME 643 596
Provision for loan losses 23 8
--------- ---------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 620 588
--------- ---------
NONINTEREST INCOME
Service fees on deposit accounts 105 76
Other 43 37
--------- ---------
Total noninterest income 148 113
--------- ---------
NONINTEREST EXPENSE
Salaries and employee benefits 298 274
Occupancy 68 52
Furniture and equipment 43 45
Other 180 184
--------- ---------
Total noninterest expense 589 555
--------- ---------
INCOME BEFORE INCOME TAXES 179 146
Income taxes 35 20
--------- ---------
NET INCOME $ 144 $ 126
========= =========
EARNINGS PER SHARE
Basic $ 0.25 $ 0.22
Diluted 0.25 0.22
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,
-----------------------
1999 1998
--------- ---------
(In thousands)
INTEREST INCOME
Interest and fees on loans $ 2,099 $ 2,001
Interest-bearing deposits with other banks 3 2
Federal funds sold 130 193
Investment securities:
Taxable 540 526
Tax exempt 346 230
--------- ---------
Total interest income 3,118 2,952
--------- ---------
INTEREST EXPENSE
Deposits 1,204 1,177
Other borrowings 67 54
--------- ---------
Total interest expense 1,271 1,231
--------- ---------
NET INTEREST INCOME 1,847 1,721
Provision for loan losses 56 41
--------- ---------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 1,791 1,680
--------- ---------
NONINTEREST INCOME
Service fees on deposit accounts 268 224
Other 136 129
--------- ---------
Total noninterest income 404 353
--------- ---------
NONINTEREST EXPENSE
Salaries and employee benefits 837 728
Occupancy 196 146
Furniture and equipment 130 121
Other 532 510
--------- ---------
Total noninterest expense 1,695 1,505
--------- ---------
INCOME BEFORE INCOME TAXES 500 528
Income taxes 72 100
--------- ---------
NET INCOME $ 428 $ 428
========= =========
EARNINGS PER SHARE:
Basic $ 0.76 $ 0.76
Diluted 0.74 0.75
See accompanying unaudited notes to the consolidated financial statements.
5
<PAGE>
TRI-STATE 1ST BANK, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other
Common Retained Comprehensive
Stock Earnings Income (Loss) Total
---------- ---------- ------------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Balance, December 31, 1998 $ 3,890 $ 990 $ 198 $ 5,078
Comprehensive Income:
Net income 428 428
Other comprehensive income:
Unrealized loss on securities (438) (438)
----------
Total comprehensive income (loss) (10)
Dividends declared ($.12 per share) (68) (68)
Cash paid in lieu of fractional
Shares (1) (1)
Stock options exercised (2,625
Shares) 55 55
--------- ---------- ---------- ----------
Balance, September 30, 1999 $ 3,945 $ 1,349 $ (240) $ 5,054
========= ========== ========== ==========
</TABLE>
See accompanying unaudited notes to the consolidated financial statements.
6
<PAGE>
TRI-STATE 1ST BANK, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
----------------------
1999 1998
--------- ---------
(In thousands)
OPERATING ACTIVITIES
Net income $ 428 $ 428
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 56 41
Depreciation, amortization, and accretion, net 116 87
Increase in accrued interest receivable (100) (249)
Increase in accrued interest payable 57 65
Other, net 81 (114)
--------- ---------
Net cash provided by operating activities 638 258
--------- ---------
INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from maturities and repayments 3,602 3,632
Purchases (5,479) (10,183)
Investment securities held to maturity:
Proceeds from maturities and repayments 47 177
Net increase in loans (1,811) (2,077)
Purchases of premises and equipment (236) (301)
--------- ---------
Net cash used for investing activities (3,877) (8,752)
--------- ---------
FINANCING ACTIVITIES
Net increase in deposits 4,071 6,333
Increase in securities sold under agreement to
repurchase 745 1,464
Principal payments on other borrowings (67) (82)
Stock options exercised 55 -
Cash dividends paid (69) (62)
--------- ---------
Net cash provided by financing activities 4,735 7,653
--------- ---------
Increase (decrease) in cash and
Cash equivalents 1,496 (841)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 5,499 5,683
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,995 $ 4,842
========= =========
See accompanying unaudited notes to the consolidated financial statements.
7
<PAGE>
TRI-STATE 1ST BANK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
- ---------------------------
The consolidated financial statements of Tri-State 1st Bank, Inc., (the
"Company"), includes its wholly-owned subsidiaries, 1st National Community
Bank, (the "Bank") and Gateminder Corporation, ("Gateminder"). All significant
intercompany balances and transactions have been eliminated.
Nature of Operations
- --------------------
Tri-State 1st Bank, Inc. is the parent company of 1st National Community Bank
and Gateminder Corporation. The Company was formed as an Ohio corporation on
April 24, 1996 and owns and controls all of the capital stock of the Bank, a
national banking association and Gateminder Corporation, an Ohio corporation.
The Company is a bank holding company which, under existing laws, is
restricted to activities generally relating to banking. The Company's primary
regulator is the Board of Governors of the Federal Reserve System.
The Bank was chartered as a national banking association in September 1987,
headquartered near East Liverpool, Ohio. Business is conducted through its
four full service offices located in Columbiana County, Ohio, and one full
service office in Hancock County, West Virginia. The Bank operates a full
service community bank, offering a variety of financial services to meet the
needs of its market area. Services include: accepting demand and time
deposits from the general public and together with borrowings and other funds,
using the proceeds to originate secured and unsecured commercial and consumer
loans and provide construction and mortgage loans, as well as home
equity and personal lines of credit. In addition, funds are also used to
purchase investment securities. The Bank's deposits are insured to the legal
maximum amount by the Federal Deposit Insurance Corporation.
On April 14, 1999, Gateminder Corporation was incorporated under the laws of
the state of Ohio as a wholly owned non-bank subsidiary of the Company.
Headquartered in East Liverpool, Ohio, Gateminder was established by the
Company to provide non-bank activities for Automated Teller Machines ("ATM").
The non-bank subsidiary sells ATM machines to businesses and merchants that
operate ATMs at their place of business and provides the means for processing
the transactions and distributing the funds taken from the account of the
user/cardholder back to the operator of the ATM. Gateminder commenced
operations on June 25, 1999.
Basis of Presentation
- ---------------------
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.
Stock Split
- -----------
On July 22, 1999, the Board of Directors declared a 5-for-4 stock split to
stockholders of record on August 4, 1999. As a result of this split, 113,290
shares of Tri-State 1st Bank stock were issued on August 25, 1999. Total shares
issued and outstanding, as well as, per share information have been
retroactively restated to reflect the stock split for all prior periods
presented.
8
<PAGE>
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements
- --------------------------------
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. In June 1999, this statement was delayed to fiscal years
beginning after June 15, 2000.
Earnings Per Share
- ------------------
The following table sets forth the comparison of Basic and Diluted earnings
per share. There were no convertible securities which would effect the
numerator in calculating Basic and Diluted earnings per share: therefore, net
income as presented on the Consolidated Statement of Income will be used as
the numerator. The following table sets forth a reconciliation of the
denominator of the Basic and Diluted earnings per share computation.
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
-------- -------- ------- -------
Weighted average common
shares used to calculate
basic earnings per share 566,833 564,836 566,186 564,836
Common stock equivalents
(stock options) used to
calculate diluted
earnings per share 9,234 4,250 9,234 4,250
------- ------- ------- ------
Weighted average common
shares and Common stock
equivalents used to
calculate diluted
earnings per share 576,067 569,086 575,420 569,086
======= ======= ======= =======
Supplemental Disclosure of Cash Flow Information
- ------------------------------------------------
Nine Months Ended
September 30,
1999 1998
--------- ---------
Cash paid during the period for:
Interest $1,214 $1,166
Income taxes 16 119
9
<PAGE>
TRI-STATE 1ST BANK, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Summary of Financial Condition
- ------------------------------
The consolidated assets of Tri-State 1st Bank were $62,922,000 at September
30, 1999, an increase of $4,689,000 or 8.0% over total assets at December 31,
1998. The increase in total assets for the first nine months of 1999 was
fueled by the Company's deposit growth, which increased by $4,071,000 or 7.9%
during the same period. Total earning assets, which principally include loans,
investment securities and federal funds sold equaled $55,617,000 at September
30, 1999 and represented an increase of $3,840,000 or 7.4% over total earning
assets at December 31, 1998.
Total stockholders' equity equaled $5,054,000 at September 30, 1999,
representing a decrease of $24,000 from total equity at December 31, 1998.
The decrease in the Company's equity for the first nine months of 1999 was a
result of a decrease in accumulated other comprehensive income, which is a
direct reflection of a temporary decline in market value for the Company's
investment securities available for sale, offset by net income earned, less
dividends paid to shareholders.
Federal Funds Sold and Investment Securities
- --------------------------------------------
Federal funds sold and investment securities available for sale serve a
primary role in the overall context of balance sheet management by the
Company. The decision to purchase or sell securities is based upon the
current assessment of economic and financial conditions, including the
interest rate environment and other on and off-balance sheet positions.
Federal funds sold at September 30, 1999 totaled $2,000,000 up $900,000 from
year-end 1998. On an average basis, federal funds sold were $3.6 million for
the first nine months of 1999. Management has generally attempted to have
available between $2 million and $4 million in federal funds sold in order to
meet the liquidity needs and loan demand of bank customers. However, this
range may shift upward as deposits increase or as cash liquidity needs change.
The investment securities available for sale portfolio was $21,190,000 at
September 30, 1999 compared to $19,958,000 at December 31, 1998, an increase
of $1,232,000 or 6.2%. Management's overall investment strategy is to invest
funds in the investment portfolio methodically in order to employ funds not
required for loan demand in a manner which will provide safety, liquidity and
improved earnings potential. Total purchases during the first nine months of
1999 totaled $5.5 million, offset by regular pay-downs, calls and maturities
of $3.6 million. In June and August of this year, the Federal reserve Board
raised short-term interest rates, causing a decline in the market value of the
Company's investment portfolio. Unrealized losses on the available for sale
portfolio totaled $364,000 at September 30, 1999 compared to an unrealized
gain of $299,000 at December 31, 1998.
Investment securities held to maturity decreased $47,000 or 2.8% in the first
nine months of 1999 when compared to the prior year-end. This decrease was
attributable to scheduled principal repayments as there were no additions to
the held to maturity portfolio during the period.
10
<PAGE>
Loans
- -----
Loans receivable at September 30, 1999 were $30,679,000 up $1,740,000 or 6.0%
from year-end 1998. Loan originations for the first nine months of 1999 have
exceeded originations from the same prior year period. Demand for commercial
and residential real-estate loans was strong during the period as commercial
type loans increased $2.1 million or 47.5% and residential real-estate loans
increased $1.5 million or 11.4%. Consumer loans also increased during the
period by $398,000 or 9.4% while commercial real-estate loans decreased. Much
of the increase in the loan portfolio can be attributed to a stable and
healthy economy, a favorable interest rate environment and the deployment of a
Business Development Officer by the Bank to generate new business within the
Bank's market area.
The following table illustrates the loan composition at September 30, 1999 and
December 31, 1998.
September 30, December 31,
1999 1998
-------- --------
(In thousands)
Commercial and agricultural $ 6,562 $ 4,450
Real estate mortgages:
Construction 467 -
Residential 15,018 13,476
Commercial 3,993 6,772
Consumer 4,639 4,241
-------- --------
30,679 28,939
Less allowance for loan losses 351 340
-------- --------
Net loans $ 30,328 $ 28,599
======== ========
Allowance for Loan Losses
- -------------------------
The Company's allowance for loan losses was $351,000 at September 30, 1999
compared to $340,000 at December 31, 1998. This represents an $11,000 or 3.2%
increase over December 31, 1998. Constituting the increase was a $56,000 loan
loss provision charged to operations during the first nine months of 1999
offset by net charge-offs of $45,000. The charge-offs for the period related
mostly to various consumer-type installment loans.
The following table illustrates the activity in the allowance for loan losses:
Nine Months Ended
September 30,
1999 1998
--------- ---------
(In thousands)
Balance, beginning of period $ 340 $ 309
Charge-offs:
Real estate loans 7 5
Installment loans 50 22
Commercial loans - -
--------- ---------
Total charge-offs 57 27
--------- ---------
Recoveries:
Real estate loans 5 -
Installment loans 7 8
Commercial loans - -
--------- ---------
Total recoveries 12 8
--------- ---------
Net charge-offs 45 19
--------- ---------
Provision charged to operations 56 33
--------- ---------
Balance, end of period $ 351 $ 323
========= =========
11
<PAGE>
Allowance for Loan Losses (continued)
- -------------------------------------
The Company believes that the allowance for loan losses at September 30, 1999
of $351,000 is adequate to cover losses inherent in the portfolio as of such
date. However, there can be no assurance that the Company will not sustain
losses in future periods, which could be substantial in relation to the size
of the allowance at September 30, 1999.
Non-Performing Assets
- ---------------------
On September 30, 1999, non-performing loans, which are comprised of
commercial, mortgage 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 non-accrual commercial
loan types which are not considered impaired, amounted to $116,000, a decrease
of $63,000 or 35.2% from December 31, 1998. This decrease was a result of a
decrease in loans past due 90 days or more. At September 30, 1999, loans past
due 90 days or more consisted of five separate loans, four of which are
secured by residential real estate and are considered by management to be
adequately secured. There were no impaired loans at September 30, 1999.
In September 1999, the Bank transferred a $27,000 loan balance that was past
due 90 days or more, to real estate owned. The loan was secured by
residential real estate which the Bank acquired through Sheriff's sale in
September, 1999. The Bank intends to liquidate this asset in an orderly
manner and anticipates no losses to be incurred.
The following presents the non-performing assets at September 30, 1999, and
December 31, 1998.
September 30, December 31,
1999 1998
---------- ----------
(In thousands)
Non-accrual loans $ - $ -
Loans past due 90 days or more 116 179
Restructured loans - -
---------- ----------
Total non-performing loans 116 179
Other real estate owned 21 -
---------- ----------
Total non-performing assets $ 137 $ 179
========== ==========
Non-performing loans as a percentage
of total loans .38% .62%
Non-performing assets as a percentage
of total assets .22% .31%
Non-performing assets as a percentage
of allowance for loan losses 39.0% 52.7%
12
<PAGE>
Deposits
- --------
Deposits continue to be 1st National Community Bank's primary source for
funding its earning assets. The Bank offers a wide variety of products
designed to attract and retain customers. Total deposits increased $4,071,000
or 7.9% when compared to total deposits at December 31, 1998. Although
increases were experienced in almost all of the Bank's deposit types, a
significant portion of the growth occurred in time deposits, which increased
$2,959,000 or 18.5%. Savings increased $696,000 or 6.8%, money market
accounts were up by $37,000 or .80% and demand deposits increased $379,000 or
1.9%. The deposit growth for the first nine months of 1999 is due to the
expansion of the Bank's branch offices as well as an ongoing commitment of
the Bank to provide exceptional deposit services at a competitive rate.
Borrowings
- ----------
The Company from time to time uses various funding sources other than deposits
to provide the funds necessary for the loan and investment securities
portfolios. Total borrowings increased $678,000 or 43.3% at September 30,
1999 from year-end 1998. Total borrowings consist of securities sold under
repurchase agreements, which are agreements with "in-market" customers of the
bank that are collateralized by various bank owned investment securities and
upon maturity, returned back to the bank, and advances with the Federal Home
Loan Bank of Cincinnati. During the first nine months of 1999, repurchase
agreements increased by $745,000 or 49.7% while other borrowings decreased by
$67,000. Business customer demand contributed for the increase in repurchase
agreements, while the decrease in advances is attributable to the maturity of
two separate advances with the Federal Home Loan Bank of Cincinnati.
RESULTS OF OPERATIONS
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER
30, 1999 AND 1998
Summary of Earnings
- -------------------
Net income for the third quarter of 1999 was $144,000 or $0.25 per basic and
diluted shares, respectively. This compares to net income of $126,000 or
$0.22 per basic and diluted share amounts earned in the third quarter of 1998.
The increase in net income for the period was a result of increases in net
interest income and noninterest income offset by increases in noninterest
expense, provision for loan losses and income tax expense.
Interest Income
- ---------------
Interest income on loans increased $46,000 or 6.7% for the three months ended
September 30, 1999 compared to the same prior year period. This increase was a
result of a $3.3 million or 12.0% increase in the average loan balance
outstanding during the 1999 period offset by an 11 basis point decrease on the
yield earned.
Interest income on federal funds sold decreased $13,000 or 28.9% during the
third quarter of 1999 when compared to the third quarter of 1998. This
decrease was a result of a $713,000 or 22.1% decrease in the average balance
outstanding during the 1999 period as well as a decrease in the yield earned.
Interest income earned on investment securities increased during the third
quarter of 1999 by $13,000 or 4.4% from the same prior year period. This
increase was a result of an increase of $1.4 million or 5.8% in the average
balance outstanding offset by a 13 basis point decrease in the yield earned on
the investment portfolio.
13
<PAGE>
Interest Expense
- ----------------
Interest expense on deposits decreased $1,000 during the third quarter of 1999
when compared to the same prior year period, average deposits for the quarter
grew by $4.6 million or 10.4%. The increase in the balance was offset by a
decrease of 33 basis points on the rates paid on these funds when compared to
the same prior year period and resulted in the interest expense remaining near
1998's level.
Interest expense on repurchase agreements and other borrowings increased only
slightly in the third quarter of 1999 when compared to the same prior year
period. This increase was due to an increase of $494,000 or 25.8% in the
average balance of borrowed funds outstanding, offset by a decrease of 37
basis points in the rate paid on these funds.
Net Interest Income
- -------------------
Net interest income is the amount that interest income generated by earning
assets, including securities and loans, exceeds interest expense associated
with interest-bearing liabilities, including deposits and borrowed funds. Net
interest income for the third quarter of 1999 totaled $643,000, an increase of
$47,000, or 7.9%, over the same prior year period. The increase in net
interest income was the result of an increase in the Bank's average earning
assets offset by lesser increases in the average balance and cost of funds on
interest-bearing liabilities.
Provision and Allowance for Loan Losses
- ---------------------------------------
The provision for loan losses charged to operations in the third quarter of
1999 was $23,000, an increase of $15,000 or 187.5% from the prior year period.
The amount of the provision for both periods was based on such factors as the
credit risks inherent in the loan portfolio, increase in the balance of the
loan portfolio outstanding, year 2000 issues and Management's ongoing
analysis of the adequacy of the allowance for loan losses.
Noninterest Income
- ------------------
Total noninterest income increased $35,000 or 31.0% in the third quarter of
1999 compared to the same prior year period. Other income increased $6,000 or
16.2%. Service fees on deposit accounts increased $29,000 or 38.2% relating
to an increase in the number of deposit accounts serviced by the bank and to a
lesser extent, an overall increase in service related fees charged to
customers.
Noninterest Expense
- -------------------
Total salary and employee benefits increased $24,000 or 8.8% in the third
quarter of 1999. Salaries and wages increased primarily due to the hiring of
additional personnel throughout the past twelve months ended September 30,
1999, and to a lesser extent, normal merit increases relating to existing
employees. Total full-time equivalent employees increased by 11.9% from
September 30, 1998 to September 30, 1999 as a result of increased staffing
level needs. Employee benefit costs were also up in the third quarter of 1999
with much of the increase stemming from increased health insurance costs.
Net occupancy expense increased $16,000 or 30.8% in the third quarter of 1999
primarily as a result of the addition of the Wal-Mart in-store branch,
expansion of the main office facility and an overall general increase in
occupancy costs.
Furniture and equipment expense and total other expenses remained relatively
unchanged, decreasing $2,000 or 4.4% and $4,000 or 2.2%, respectively, in the
third quarter of 1999 when compared to the same prior year period.
The provision for income tax was $35,000 in the third quarter of 1999 compared
to $20,000 in the same prior year period. This represents an increase of
$15,000 or 75.0% and is due to an increase in taxable income.
14
<PAGE>
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
Summary of Earnings
- ------------------
Net income for the nine months ended September 30, 1999 and 1998 was $428,000.
On a per share basis, net income for the 1999 period was $0.76 and $0.74 for
basic and diluted shares, respectively. This compares to $0.76 and $0.75 for
basic and diluted shares, respectively in 1998. While net income remained
unchanged from 1998 to 1999, net interest income and noninterest income were
up moderately in 1999. However these increases were offset by increases in
noninterest expenses and provision for loan losses. Noninterest expenses were
up mostly as a result of the Bank expanding its branch network through the
addition of an in-store Wal-Mart office that occurred in late 1998 and the
formation of a new non-bank subsidiary, Gateminder Corporation, in the second
quarter of 1999.
Interest Income
- ---------------
Interest income on loans increased $98,000 or 4.9% for the nine months ended
September 30, 1999 compared to the same prior year period. This increase was a
result of a $2.4 million or 8.8% increase in the average loan balance
outstanding during the 1999 period offset by a 33 basis point decrease on the
yield earned.
Interest income on federal funds sold decreased $63,000 or 32.6% during the
first nine months of 1999 when compared to the same prior year period. This
decrease was a result of a $970,000 or 21.3% decrease in the average balance
outstanding during the 1999 period as well as a decrease of 83 basis points
in the yield earned.
Interest income earned on investment securities increased during the first
nine months of 1999 by $130,000 or 17.2% from the same prior year period. This
increase was a result of an increase of $2.4 million or 10.3% in the average
balance outstanding as well as a slight increase in the yield earned on the
investment portfolio.
Interest Expense
- ----------------
Interest expense on deposits increased $27,000 or 2.3% in the first nine
months of 1999 when compared to the same prior year period. This increase was
due to an increase of $5.0 million or 11.5% in the average balance of deposits
outstanding, offset by a decrease of 24 basis points in the rate paid on these
funds.
Interest expense on repurchase agreements and other borrowings increased
$13,000 or 24.1% for the nine months ended September 30, 1999 when compared
to the same prior year period. This increase was due to an increase of
$794,000 or 51.1% in the average balance of borrowed funds outstanding, offset
by a decrease of 32 basis points in the rate paid on these funds.
Net Interest Income
- -------------------
Net interest income is the amount that interest income generated by earning
assets, including securities and loans, exceeds interest expense associated
with interest-bearing liabilities, including deposits and borrowed funds. Net
interest income for the nine month period ended September 30, 1999 totaled
$1,847,000, an increase of $126,000, or 7.3%, over the same prior year period.
The increase in net interest income was the result of an increase in the
Company's average earning assets offset by lesser increases in the average
balance and cost of funds on interest-bearing liabilities.
15
<PAGE>
Provision and Allowance for Loan Losses
- ---------------------------------------
The provision for loan losses charged to operations in the first nine months
of 1999 was $56,000, an increase of $15,000 or 36.6% from the prior year period.
he amount of the provision for both periods was based on such factors as the
credit risks inherent in the loan portfolio, increase in the balance of the
loan portfolio outstanding, year 2000 issues and Management's ongoing analysis
of the adequacy of the allowance for loan losses.
Noninterest Income
- ------------------
Total noninterest income increased $51,000 or 14.5% in the first nine months
of 1999 compared to the same prior year period. Other income increased $7,000
or 5.4%. Service fees on deposit accounts increased $44,000 or 19.6% relating
to an increase in the number of deposit accounts serviced by the bank and to a
lesser extent, an overall increase in service related fees charged to
customers.
Noninterest Expense
- -------------------
Total salary and employee benefits increased $109,000 or 15.0% during the nine
months ended September 30, 1999. Salaries and wages increased primarily due to
the hiring of additional personnel throughout the past twelve months ended
September 30, 1999, and to a lesser extent, normal merit increases relating to
existing employees. Total full-time equivalent employees increased by 11.9%
from September 30, 1998 to September 30, 1999 as a result of increased
staffing level needs. Employee benefit costs were also up in the first nine
months of 1999 with much of the increase stemming from increased health
insurance costs.
Net occupancy expense increased $50,000 or 34.3% in the first nine months of
1999 primarily as a result of the addition of the Wal-Mart in-store branch,
expansion of the main office facility and an overall general increase in
occupancy costs.
Furniture and equipment expense increased $9,000 or 7.4% in the first nine
months of 1999 when compared to the same prior year period. This increase is
attributable to increases in capital investments relating to new equipment and
furniture, resulting in higher depreciation costs.
Other expenses increased $22,000 or 4.3%, in the first nine months of 1999 due
to increases in overall general and administrative expenses such as,
stationery and printing, postage and telephone costs and MAC expenses.
The provision for income tax was $72,000 for the first nine months of 1999
compared to $100,000 in the same prior year period. This represents a
decrease of $28,000 and is due to a decrease in income before taxes and a
significant increase in tax exempt income.
Liquidity
- ---------
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 Bank's primary sources of funds are deposits, proceeds from principal and
interest payments on loans and mortgage-backed securities and interest
payments and maturities on investment securities. While scheduled principal
repayments on loans and mortgage-backed securities and interest payments on
investment securities are a relatively predictable source of funds, deposit
outflows and mortgage-backed prepayments are greatly influenced by general
interest rates, economic conditions, competition and other factors.
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.
16
<PAGE>
Year 2000 Compliance
- ------------------
As a financial institution holding company, Tri-State is highly dependent upon
computers and computer programs and the accuracy of these computer programs is
critical to Tri-State's operations. The approach of the year 2000 presents
the possibility that the Bank or its customers, suppliers or correspondent
banks may be subject to errors caused by computer programs not correctly
recognizing the year 2000 and making inaccurate calculations.
The Company has been actively working on the Year 2000 computer problem since
1997 and has completed a comprehensive plan of action addressing system-
related Year 2000 issues. The Company has completed its awareness,
assessment, renovation, validation, implementation, and testing phases; the
results of which reflect the Company's internal systems to be Year 2000 ready.
FFIEC's guidelines have been followed, customer relations training has been
achieved, and the Company is actively involved in the final stages of
contingency planning training sessions.
Many of the Company's business system applications have either been modified
or replaced. The Company in conjunction with its vendors, has tested all of
its mission critical systems and has required representations from its vendors
that the products are or will be Year 2000 compliant. Both internal and
external resources were utilized in completing the Company's testing
objectives. Internal tests have been completed, and test results, which have
been documented and validated, are deemed to be year 2000 compliant.
The Company has established a contingency and business resumption plan in the
unlikely event that the systems tested do not, in fact, operate properly when
the year 2000 does arrive. The business resumption plan focuses on steps
needed to maintain the Bank's customer accounts, deposit and loans, as well as
accounting systems on a manual basis, if needed, to ensure business
continuation while systems are being corrected.
The ability of the Bank's loan customers to repay their obligations could also
be affected by business interruptions caused by Year 2000 data processing
problems. The Bank has established and put into place an on-going monitoring
system to assess its largest borrowers and their Year 2000 readiness in
relation to their ability to repay their obligations to the Bank.
Much attention has also been given to the Bank's deposit customers, as they
may need to have additional cash on hand in the latter part of 1999. In
response to anticipated cash demands, which are not expected to be material,
the Company will maintain higher liquidity levels in the latter part of 1999.
The Company believes that the Year 2000 issue will not pose significant
operational problems and is not anticipated to be material to its financial
position or results of operations. The Company currently believes that all
major capital and operating expenditures relating to Year 2000 have been
incurred and totaled approximately $40,000, net of taxes. The Company does not
anticipate any significant additional costs to insure it's readiness for the
Year 2000 beyond regularly scheduled software and hardware upgrades.
17
<PAGE>
TRI-STATE 1ST BANK, INC.
FORM 10-QSB
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in securities
None
Item 3. Defaults upon senior securities
None
Item 4. Submission of matters to a vote of security holders
None
Item 5. Other information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule, filed herewith
(b) Reports on Form 8-K
None
18
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities and Exchange Act of
1934, the Registrant 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
----------------------------------
October 12, 1999 Charles B. Lang
President and Chief Executive
Officer
Date: By: /s/ Kevin Anglemyer
----------------------------------
October 12, 1999 Kevin Anglemyer
Chief Financial Officer
19
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<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1999
<CASH> 4,900
<INT-BEARING-DEPOSITS> 95
<FED-FUNDS-SOLD> 2,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 21,190
<INVESTMENTS-CARRYING> 1,653
<INVESTMENTS-MARKET> 1,669
<LOANS> 30,679
<ALLOWANCE> 351
<TOTAL-ASSETS> 62,992
<DEPOSITS> 55,420
<SHORT-TERM> 2,245
<LIABILITIES-OTHER> 273
<LONG-TERM> 0
0
0
<COMMON> 3,945
<OTHER-SE> 1,349
<TOTAL-LIABILITIES-AND-EQUITY> 62,992
<INTEREST-LOAN> 2,099
<INTEREST-INVEST> 886
<INTEREST-OTHER> 133
<INTEREST-TOTAL> 3,118
<INTEREST-DEPOSIT> 1,204
<INTEREST-EXPENSE> 1,271
<INTEREST-INCOME-NET> 1,847
<LOAN-LOSSES> 56
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,695
<INCOME-PRETAX> 428
<INCOME-PRE-EXTRAORDINARY> 428
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 428
<EPS-BASIC> 0.76
<EPS-DILUTED> 0.74
<YIELD-ACTUAL> 4.86
<LOANS-NON> 0
<LOANS-PAST> 116
<LOANS-TROUBLED> 0
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<ALLOWANCE-OPEN> 340
<CHARGE-OFFS> 57
<RECOVERIES> 12
<ALLOWANCE-CLOSE> 351
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