<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------- ----------------
Commission File Number: 33-302132
TRI-STATE 1ST BANK, INC.
(Exact name of small business issuer as specified in its charter)
Ohio 34-1824708
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification
Number)
16924 St. Clair Avenue
P.O. Box 796
East Liverpool, Ohio 43920
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(330)385-9200
-------------
Securities registered under Section 12(b) of the Exchange Act:
None
----
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, no par value
--------------------------
(Title of Class)
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 requirements for the past 90 days.
Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year $4.4 million.
The aggregate market value of the voting stock held by non-affiliates computed
by reference to the averaged bid and ask price on March 8, 1999, was
$9,605,472 (300,171 shares at $32 per share).
As of December 31, 1998, there were issued and outstanding 451,869 shares of
the registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual shareholders report for the year ended December 31,
1998 are incorporated by reference into Parts I and II, and portions of the
Proxy Statement for the annual sharesholders meeting held April 14, 1999 are
incorporated by reference into Part III.
<PAGE>
Tri-State 1st Bank, Inc.
Form 10-KSB
Table of Contents
Page
Number
Part I
Item 1. Business 3-9
Item 2. Properties 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Part II
Item 5. Market for Common Equity and Related Stockholder Matters 9
Item 6. Managements Discussion and Analysis 9
Item 7. Financial Statements 10
Item 8. Changes in and disagreements with Accountants on
Accounting and Financial Disclosure 10
Part III
Item 9. Directors, Executive Officers, Promoters and
Control Persons 10
Item 10. Executive Compensation 10
Item 11. Security Ownership of Certain Beneficial
Owners and Management 10
Item 12. Certain Relationships and Related Transactions 10
Item 13. Exhibits and Reports on Form 8-K 10
Signatures 11
Page 2
<PAGE>
PART I
ITEM 1. BUSINESS
General
- -------
Certain information required by this section is presented on page 37 of the
1998 Annual Report and is incorporated herein by reference.
Tri-State 1st Bank, Inc. (the "Company") is the parent company for 1st
National Community Bank (the "Bank"), with principal executive offices of both
the Company and the Bank located in East Liverpool, Ohio. At December 31,
1998, the Bank had 38 full-time and 10 part-time employees.
Supervision and Regulation
- --------------------------
The Company is subject to regulation under the Bank Holding Company Act of
1956, as amended and the Securities and Exchange Commission.
Deposits maintained with the Bank are insured up to regulatory limits by the
FDIC, and accordingly, are subject to deposit insurance assessments to
maintain the Bank Insurance Fund ("BIF") administered by the FDIC. The
Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA") was enacted on August 9, 1989. FIRREA significantly affected the
financial industry in several ways, including higher deposit insurance
premiums, more stringent capital requirements and new investment limitations
and restrictions. The Federal Deposit Insurance Corporation Act of 1991 ("The
FDIC Improvement Act") covered a wide expanse of Banking regulatory issues.
The FDIC Improvement Act dealt with the capitalization of the BIF, with
deposit insurance reform, including requiring the FDIC to establish a risk -
based premium assessment system, and with a number of other regulatory and
supervisory matters. On December 11, 1995, the FDIC adopted reduced
assessment rates for the semiannual assessment period beginning January 1,
1996. The resulting annual assessment rates ranged from $0.00 per $100 of
deposits for banks classified in the highest capital and supervisory
evaluation categories to $.27 per $100 of deposits for banks classified in the
lowest capital and supervisory evaluation categories, subject to a minimum
assessment. As a result of the Bank meeting certain capital requirements, the
premium assessment for 1998 and 1997 was nominal.
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the Interstate Banking Law"), various federal banking laws were amended to
provide for nationwide interstate banking, interstate bank mergers and
interstate branching. The Interstate Banking Law allowed, effective September
29, 1995, the acquisition by a bank holding company of a bank located in
another state. Interstate bank mergers and branch purchase and assumption
transactions will be allowed effective June 1, 1997; however, states may "opt
out" of the merger and purchase and assumption provisions by enacting laws
that specifically prohibit such interstate transactions. States may, in the
alternative, enact legislation to allow interstate merger and purchase and
assumption transactions prior to June 1, 1997. The Bank exercised use of the
Interstate Banking Law to facilitate the acquisition of a branch in the state
of West Virginia, as referenced to in the "Market Area" discussion below.
The monetary policies of regulatory authorities, including the Federal Reserve
Board, have a significant effect on the operating results of banks and bank
holding companies. The nature of future monetary policies and the effect of
such policies on the future business and earnings of the Company cannot be
predicted.
Management is not aware of any current recommendations by regulatory
authorities which, if they were to be implemented, would have a material
effect on liquidity, capital resources or operations of the Company.
Competition
- -----------
The Bank functions in a highly competitive environment. In addition to other
commercial banks, savings and loans, and savings banks, the Bank must also
contend with other providers of financial services including finance
companies, credit unions and insurance companies. The Bank's immediate
competition emanates specifically from National City Bank, Banc One, Potters
Savings & Loan, Central Federal Savings & Loan and Perpetual Savings Bank.
Each of these competitors operate in varying capacities within the Columbiana
County area, the market region shared with the Bank. Despite having access to
less resources and smaller lending limits, the Bank remains competitive in its
service area with respect to interest rates and fees charged on loans,
interest rates paid on time and savings deposits, and service charges on
deposit accounts. The deposit base of the Bank is relatively stable; seasonal
fluctuations in the amount of deposits have not been experienced. All of the
Bank's deposits emanate from inside the United States.
Page 3
<PAGE>
Market Area
- -----------
The Bank's primary market area is East Liverpool and Lisbon, Ohio and
surrounding communities in the tri-state area which includes eastern Ohio,
northern West Virginia and southwestern Pennsylvania and is known as the Upper
Ohio Valley. In an attempt to enhance its branch network, the Bank acquired
the assets and assumed the deposits and other liabilities of United
Bankshares, Inc.'s New Cumberland, West Virginia branch office. The purchase
price was $157,000 in cash plus the value of all deposit accounts based upon
the balance as of the date of closing at a premium of 5 1/2% of account
balances. Consummation and closing occurred on September 1, 1997. This
acquisition is ultimately expected to have a positive impact on net income and
future earnings per share.
Statistical Disclosures by Bank Holding Companies
- --------------------------------------------------
I. Distribution of Assets, Liabilities and Shareholders' Equity; Interest
Rates and Interest Differential
Information required by this section is presented on pages 41 and 42 of the
1998 Annual Report and is incorporated herein by reference.
II. Investment Portfolio
A. Book Value of Investment Portfolio
The required information is presented under Part II, Item 8. - Financial
Statements
B. Maturity and Yield Information
The following table sets forth the maturity of investments at December 31,
1998, and the weighted average yields of such investments. The yields
reflected are calculated based on the basis of the cost and effective yields
weighted for the scheduled maturity of each investment.
<TABLE>
<CAPTION>
1 Year 5 Years
Within 1 Through Through Over 10
Year 5 Years 10 Years Years Total
----------- ----------- ----------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities
and other U.S. Government
agencies and corporations $ 1,991 $ 8,501 $ 1,301 $ - $ 11,793
Obligations of states and
political subdivisions 107 2,142 6,053 470 8,772
Mortgage-backed securities - 165 - 390 555
Equity securities - - - 237 237
----------- ----------- ----------- ----------- -----------
$ 2,098 $ 10,808 $ 7,354 $ 1,097 $ 21,357
=========== =========== =========== =========== ===========
U.S. Treasury securities
and other U.S. Government
agencies and corporations 5.46% 5.83% 6.28% -%
Obligations of states and
political subdivisions 9.85 9.00 7.60 9.98
Mortgage-backed securities - 6.51 6.73 6.66
Equity securities - - - 6.54
----------- ----------- ----------- -----------
5.68% 6.47% 7.36% 8.05%
=========== =========== =========== ===========
</TABLE>
Weighted average yields are computed on a tax equivalent basis using a federal
tax rate of 34% based on cost, adjusted for amortization of premium or
accretion of discount.
C. Aggregate Book Value of Securities Exceeding 10% of Stockholders' Equity
Excluding those holdings of the investment portfolio in U.S. Treasury
securities and other agencies and corporations of the U.S. Government, there
are no investments of any one issuer which exceeds 10% of the Company's
shareholders' equity at December 31, 1998.
Page 4
<PAGE>
III. Loan Portfolio
A. Types of Loans
The following table sets forth the composition of the loan portfolio by type
of loan at the dates indicated.
At December 31,
-------------------------------------------
1998 1997
------------------- -------------------
Amount Percent Amount Percent
-------- -------- -------- --------
(Dollars in Thousands)
Type of Loan
- ------------
Real Estate Loans:
Construction $ - -% $ - -%
1 - 4 Family 13,559 46.80 12,192 46.81
Commercial 6,772 23.37 4,477 17.19
Commercial Loans 4,444 15.34 5,639 21.65
Consumer Loans 4,199 14.49 3,737 14.35
-------- -------- -------- --------
Total 28,974 100.00% 26,045 100.00%
======== ========
Less:
Deferred loan origination
fees and costs 35 32
Allowance for possible
loan losses 340 309
-------- --------
Net loans $ 28,599 $ 25,704
======== ========
The Bank's lending policy requires the application and satisfaction of certain
underwriting standards prior to funding any loan, among which are
documentation requirements to include credit and collateral value analysis.
Credit qualification entails evaluation of business cash flows or consumer
income available to service debt payments. Secondary sources of repayment,
including collateral and guarantees may be requested as well. Lending
opportunities typically are restricted to the market areas the Bank's
branches serve.
The Bank's lending strategy has historically focused on the origination and
retention of a mixture in its portfolio of commercial loans, one-to-four
family mortgage loans and, to a lesser extent, working capital loans in the
form of credit lines and term notes, personal loans, and home equity loans.
Commercial real estate loans are granted for the acquisition or improvement of
real property. Generally, commercial real estate loans do not
exceed 70% of the appraised value of the property pledged to secure the
transaction. With repayment typically contingent upon successful operation of
the subject real estate, this is carefully scrutinized prior to approval.
Real estate construction loans are granted for the purpose of construction
improvements to real property, both commercial and residential. Real estate
loans secured by one-to-four family residential housing properties are granted
subject to statutory limits regarding the maximum percentage of appraised
value of the mortgaged property. Residential loan terms are normally
established based upon factors such as interest rates in general, the supply
of money available to the Bank and the demand for such loans.
Consumer loans represent the extension of financing to customers for personal
expenditures or household purposes. Creditworthiness is evaluated on the basis
of projected repayment capacity as well as credit history. Such loans are
granted in the form of installment or revolving transactions.
Page 5
<PAGE>
B. Maturities and Sensitivities of Loans to Changes in Interest Rates
The following table exhibits the maturity of commercial and real estate
construction loans outstanding as of December 31, 1998, and the amounts due
after one year classified according to the sensitivity to changes in interest
rates.
<TABLE>
<CAPTION>
Maturing
Within Through After
1 Year Five Years Five Years Total
--------- ---------- ---------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Commercial and agricultural $ 2,132 $ 668 $ 1,650 $ 4,450
Real estate-construction - - - -
--------- --------- --------- ---------
Total $ 2,132 $ 668 $ 1,650 $ 4,450
========= ========= ========= =========
Sensitivity of loans to interest rates:
Predetermined interest rates $ 241 $ 69
Floating interest rates 427 1,581
--------- ---------
Total $ 668 $ 1,650
========= =========
C. Risk Elements
Certain information required by this section is presented on pages 11, 24, 37-45 of
the 1998 Annual Report and is incorporated herein by reference.
The following table sets forth information regarding non-performing assets:
At December 31,
---------------------------
1998 1997
----------- -----------
(Dollars in Thousands)
Loans past due 90 days or more and
still accruing interest $ 179 $ 102
Nonaccrual loans - -
Impaired loans - -
----------- -----------
Total non-performing loans 179 102
Other real estate owned - -
----------- -----------
Total non-performing assets $ 179 $ 102
=========== ===========
Non-performing assets to
allowance for loan losses 52.6% 33.0%
Non-performing assets include non-performing loans and other real estate
owned. The Bank's non-performing assets, do not represent or result from
trends or uncertainties which management reasonably expects will materially
impact future operating results, liquidity or capital resources. Impaired
loans are commercial and commercial real estate loans for which it is probable
that the Bank will not be able to collect all amounts due according to the
contractual terms of the loan agreement. The Bank evaluates such loans for
impairment individually and does not aggregate loans by major risk
classifications. The definition of "impaired loans" is not the same as the
definition of "nonaccrual loans," although the two categories overlap. The
Bank may choose to place a loan on nonaccrual status due to payment
delinquency or uncertain collectibility, while not classifying the loan as
impaired if the loan is not a commercial or commercial real estate loan.
Factors considered by management in determining impairment include changes in
repayment capacity, payment status and collateral value. The amount of
impairment for these types of impaired loans is determined by the difference
between the present value of the expected future cash flows related to the
loan, using the original interest rate, and its recorded value, or as a
practical expedient in the case of collateralized loans, the difference
between the fair value of the collateral and the recorded amount of the loans.
When foreclosure is probable, impairment is measured based on the fair value
of the collateral.
Page 6
<PAGE>
Mortgage loans on one-to-four family properties and all consumer loans are
large groups of smaller balance homogeneous loans and are measured for
impairment collectively. Loans that experience insignificant payment delays,
which are defined as 90 days or less, generally are not classified as
impaired. Management determines the significance of payment delays on a
case-by-case basis, taking into consideration all of the circumstances
surrounding the loan and the borrower, including the length of the delay, the
borrower's prior payment record, and the amount of shortfall in relation to
the principal and interest owed.
Although the Bank has a diversified loan portfolio, a substantial portion of
its debtors' ability to honor their agreements is dependent upon the economic
stability of the tri-state area. At December 31, 1998, the Corporation did
not have any concentrations of loans to borrowers engaged in similar
activities exceeding 10% of total loans.
While it is impossible to predict what 1999 loan losses will be, there are no
potential problem loans outstanding at the end of any period presented for
which there was serious doubt as to the ability of the borrower to comply with
present loan repayment terms except as discussed above.
IV. Summary of Loan Loss Experience
A. Analysis of Loan Loss Experience
The following table sets forth information with respect to the Bank's
allowance for loan losses at the dates indicated:
At December 31,
--------------------------
1998 1997
---------- ----------
(Dollars in Thousands)
Balance, January 1 $ 309 $ 290
Charge-offs:
Commercial and agricultural - -
Real estate mortgages 5 -
Consumer 33 47
---------- ----------
Total charge-offs 38 47
---------- ----------
Loan recoveries:
Commercial and agricultural - -
Real estate mortgages - -
Consumer 15 12
---------- ----------
Total loan recoveries 15 12
---------- ----------
Net charge-offs 23 35
---------- ----------
Provision charged to operations 54 54
---------- ----------
Balance, December 31 $ 340 $ 309
========== ==========
Net charge-offs as a percent
of average loans 0.08% 0.14%
The Bank believes that the allowance for loan losses at December 31, 1998 is
adequate to cover losses inherent in the portfolio. However, there can be no
assurance that the Bank will not sustain additional losses in future periods,
which could be substantial in relation to the size of the allowance at
December 31, 1998.
Page 7
<PAGE>
B. Allocation of the Allowance for Possible Loan Losses
The allocation of the allowance for possible loan losses is predicated upon
periodic review and evaluation of individual loans, past loss experience, risk
elements associated with particular loan categories, and the impact of the
economic environment. The allowance for loan losses is available to absorb
credit losses arising from individual or portfolio segments. When losses on
specific loans are identified, the portion deemed uncollectable is charged
off.
The Bank monitors its loan portfolio on a monthly basis, taking into
consideration the status of potential problem loans and non - performing
assets, as well as trends in delinquencies. Management's determination of the
adequacy of the allowance for loan losses is based on periodic evaluations of
the credit portfolio and other relevant factors. In addition to the estimate
of the amounts and timing of expected future cash flows on impaired loans,
other components of the allowance for loan losses include estimates for loan
losses associated within the commercial, consumer and real estate mortgage
portfolios, general amounts for historical loss experience, uncertainties in
estimating losses, and inherent risks in the various credit portfolios.
V. Deposits
A. Average Deposits and Rates Paid by Type
The following tables summarize the daily average amount of deposits and rates
paid on such deposits for the periods indicated.
Year Ended December 31,
-----------------------------
1998 1997
------------- -------------
Amount
- -------------------------- (Dollars in thousands)
Noninterest-bearing demand $ 7,155 $ 6,300
Interest-bearing demand 10,418 8,073
Savings 9,810 8,492
Money market 4,918 4,946
Time 15,766 12,921
------------- -------------
Total $ 48,067 $ 40,732
============= =============
Rate
- --------------------------
Noninterest-bearing demand -% -%
Interest-bearing demand 2.25 2.75
Savings deposits 2.50 2.99
Money market 2.75 2.99
Time deposits 5.29 5.37
The following table sets forth the remaining maturity of time certificates of
deposit in denominations of $100,000 or more.
December 31,
1998
-------------
(In thousands)
3 months or less $ 1,647
Over 3 months through 6 months 300
Over 6 months through 12 months 952
Over 12 months 110
-------------
Total $ 3,009
=============
Page 8
<PAGE>
VI. Return on Equity
The required information is incorporated by reference to page 11 of the 1998
Annual Report.
VII. Short - Term Borrowings
The required information is presented under Part II, Item 8. - Financial
Statements
Item 2. Properties
The following are the principal locations of operations of the Company and
Bank:
Own or Term of
Description Rent Lease
- ------------------------ ------ -------
Executive offices of the
Company and Bank and
main branch
16924 St. Clair Avenue
East Liverpool, OH 43920 Own N/A
Branch office
Jefferson & Lincoln Way
Lisbon, OH 44432 Own N/A
Branch office Lease
15703 St Rt 170 expiration:
Calcutta, OH 43920 Rent 12/01/05
Branch office Lease
Wal Mart Store expiration:
Calcutta, OH 43920 Rent 05/17/02
Branch office
1200 North Chestnut Street
New Cumberland, WV 26047 Own N/A
Management asserts that for insurance purposes all facilities and equipment
are subject to periodic appraisal and all properties are adequately insured.
Item 3. Legal Proceedings
There are no pending legal proceedings, other than ordinary routine litigation
incidental to banking, to which the Company or the Bank is a party or of which
any of the Company's or Bank's property is subject.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the fourth
quarter of 1998.
Item 5. Market for Common Equity and Related Stockholder Matters
The required information is incorporated by reference to page 12 of the 1998 annual report.
Item 6. Managements Discussion and Analysis
The required information is incorporated by reference to pages 37-45 of the 1998 annual report.
Page 9
<PAGE>
Item 7. Financial Statements
The required information is incorporated by reference to pages 13-34 of the
1998 annual report.
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons,
Compliance With Section 16(a) of the Exchange Act.
The required information is incorporated by reference to pages 4 through 6 of
the proxy statement.
Item 10. Executive Compensation
The required information is incorporated by reference to pages 7 and 8 of the
proxy statement.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The required information is incorporated by reference to pages 9 through 11 of
the proxy statement.
Item 12. Certain Relationships and Related Transactions.
The required information is incorporated by reference to page 13 of the proxy
statement.
Item 13. Exhibits and Reports on Form 8-K.
The following documents are filed as part of this report, except as may be
indicated:
(1) Financial Statements:
The following Consolidated Financial Statements of Tri - State 1st Bank, Inc.
together with the Report of Independent Auditors dated January 8, 1999, are
included in the 1998 Annual Report of the registrant which is referenced in
Part II, Item 7 - Financial Statements and are incorporated herein:
Page Reference
--------------
Report of Independent Auditors. 13
Consolidated Balance Sheet, December 31, 1998 and 1997. 14
Consolidated Statement of Income for the years ended
December 31, 1998 and 1997. 15
Consolidated Statement of Stockholders' Equity for the
years ended December 31, 1998 and 1997. 16
Consolidated Statement of Cash Flows for the years
ended December 31, 1998 and 1997 17
Notes to Consolidated Financial Statements 18-34
(2) Exhibits:
Exhibits filed herewith or incorporated by reference are set forth in the
following table prepared in accordance
with item 601 of Regulation S-B.
(3.1) Articles of Incorporation of the registrant are incorporated
herein by reference to the registrant's Registration Statement on
Form S-4 filed with the Securities and Exchange Commission on
March 8, 1996.
(3.2) By-laws of the registrant are incorporated by reference to the
registrant's Registration Statement on Form S-4 filed with the
Securities and Exchange Commission on March 8, 1996.
(13) Annual Report to Security Holders for the year ended December 31,
1998, filed herewith as exhibit 13.
(21) Subsidiary of the registrant incorporated herein by reference to
the registrant's Registration Statement on Form S-4 filed with the
Securities and Exchange Commission on March 8, 1996.
(27) Financial Data Schedule for the year ended December 31, 1998,
filed herewith as exhibit 27.
Page 10
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Tri-State 1st Bank, Inc.
/s/ Charles B. Lang
Date: March 26, 1999 --------------------------------------------
Charles B. Lang
President
(Principal Executive Officer)
/s/ Keith R. Clutter
Date: March 26, 1999 --------------------------------------------
Keith R. Clutter
Secretary
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the persons on behalf of the registrant and in
the capacities and on the dates indicated.
Name Title Date
- ----------------------- ----------- ------------------------
/s/ Charles B. Lang
- -------------------
Charles B. Lang President March 26, 1999
/s/ Keith R. Clutter
- --------------------
Keith R. Clutter Secretary March 26, 1999
/s/ William E. Blair
- --------------------
William E. Blair Director March 26, 1999
/s/ Stephen W. Cooper
- --------------------
Stephen W. Cooper Director March 26, 1999
/s/ G. Allen Dickey
- --------------------
G. Allen Dickey Director March 26, 1999
/s/ Marvin H. Feldman
- -------------------
Marvin H. Feldman Director March 26, 1999
/s/ R. Lynn Leggett
- -------------------
R. Lynn Leggett Director March 26, 1999
/s/ John P. Scotford, Sr.
- ---------------------
John P. Scotford, Sr. Director March 26, 1999
/s/ John C. Thompson
- ---------------------
John C. Thompson Director March 26, 1999
Page 11
</TABLE>
<PAGE>
Financial Highlights of 1998
- ----------------------------
(Dollars in Thousands, Except Per Share Information)
1998 1997 Change
------- ------- --------------
Balance Sheet Highlights
- ------------------------
at December 31,
- --------------
Total assets $58,303 $48,326 $ 9,977 20.6%
Investment securities 21,657 14,985 6,672 44.5
Loans 28,939 26,012 2,927 11.3
Allowance for loan losses 340 309 31 10.0
Total earning assets 49,818 40,843 8,975 22.0
Deposits 51,349 42,904 8,445 19.7
Stockholders' equity 5,078 4,515 563 12.5
For the Year
- ------------
Net income $ 548 $ 525 $ 23 4.4%
Net interest income 2,287 2,064 223 10.8
Cash dividends paid 130 117 13 11.1
Stockholders' Value (per share) (1)
- ----------------------------------
Diluted earnings per share $ 1.20 $ 1.16 $ 0.04 3.4%
Cash dividends paid 0.29 0.26 0.03 11.5
Book value 11.24 9.89 1.35 13.7
Market value 33.00 19.80 13.20 66.7
Safety and Soundness
- --------------------
Stockholders' equity to total assets 8.71% 9.34% - -6.7%
Dividend as a percent of net income 23.70 22.30 - 6.3
Net charge-offs to average loan .09 .14 - -35.7
Allowance for loan losses to
total loans 1.18 1.19 - -.8
Total capital to risk-weighted assets 16.64 17.62 - -5.6
(1) Adjusted for a 10% stock dividend effective June 26, 1998
<PAGE>
Selected Financial Data
- -----------------------
The following tables set forth certain information concerning the consolidated
position and certain performance ratios of the Company and its subsidiary,
1st National Community Bank at the dates indicated:
[CAPTION]
<TABLE>
At or for the Year Ended December 31,
---------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(Dollars in Thousands, Except Per Share Information)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data
Assets $58,303 $48,326 $43,175 $38,636 $34,915
Investment securities 21,657 14,985 12,187 10,477 9,840
Loans 28,939 26,012 24,052 22,117 19,048
Allowance for loan losses 340 309 290 266 233
Deposits 51,349 42,904 38,690 34,358 31,111
Other borrowings 67 177 279 375 115
Stockholders' equity 5,078 4,515 4,036 3,686 3,225
Summary of Operations
Interest income $ 3,933 $ 3,396 $ 3,039 $ 2,704 $ 2,274
Interest expense 1,646 1,332 1,223 1,043 825
------- ------- ------- ------- -------
Net interest income 2,287 2,064 1,816 1,661 1,449
Provision for loan losses 54 54 49 68 50
------- ------- ------- ------- -------
Net interest income after
provision for loan losses 2,233 2,010 1,767 1,593 1,399
Other operating income 487 351 349 309 248
Other operating expense 2,057 1,685 1,485 1,355 1,290
------- ------- ------- ------- -------
Income before income taxes 663 676 631 547 357
Income taxes 115 151 161 145 75
------- ------- ------- ------- -------
Net income $ 548 $ 525 $ 470 $ 402 $ 282
======= ======= ======= ======= =======
Per Share Data (1)
Diluted earnings $ 1.20 $ 1.16 $ 1.04 $ 0.89 $ 0.62
Cash dividends declared 0.29 0.26 0.23 0.22 0.20
Book value 11.24 9.89 8.84 8.07 7.07
Average shares outstanding 451,869 451,869 451,869 451,869 451,869
Market Information (1)
High $ 33.00 $ 19.80 $ 15.30 $ 14.29 $ 8.55
Low 26.00 14.40 13.50 9.34 8.33
At December 31 33.00 19.80 15.30 14.29 8.55
Selected Financial Ratios
Return on average assets 0.99% 1.15% 1.14% 1.12% 0.87%
Return on average equity 11.38 12.31 12.21 11.54 8.79
Average equity to average assets 8.73 9.35 9.33 9.63 9.94
Equity to assets at end of period 8.71 9.34 9.35 9.54 9.24
Non-performing assets to total assets 0.30 0.21 0.80 1.11 0.74
Non-performing loans to total loans 0.59 0.39 1.44 1.44 0.76
(1) Adjusted for a 10% stock dividend effective June 26, 1998 and
2-for-1 stock splits effective July 9, 1997 and February 22, 1995.
</TABLE>
<PAGE>
Common Stock Market Price and Dividend Information
Tri-State 1st Bank, Inc.'s common stock is traded on the NASDAQ OTC Bulletin
Board under the trade symbol TSEO. The following table presents the quarterly
high and low prices as reported by Advest, Inc., a market maker in the
Company's common stock and previously the Bank's common stock, for the
recent two-year period ended December 31, 1998. Also included in the table
are dividends declared per share on the outstanding common stock.
Cash
Common Stock Price Dividends
- ------------------------------------------------ Declared
1998 High Low Per Share
- ----------------- ------------- ------------- -------------
First Quarter $ 23.40 $ 15.30 $ -
Second Quarter 28.75 28.75 0.14
Third Quarter 31.75 31.75 -
Fourth Quarter 33.00 33.00 0.15
-------------
$ 0.29
=============
1997
- -----------------
First Quarter $ 15.30 $ 14.40 $ -
Second Quarter 18.00 15.30 -
Third Quarter 19.80 18.00 0.13
Fourth Quarter 19.80 18.00 0.13
-------------
$ 0.26
=============
At December 31, 1998, there were 451,869 of common shares issued and
outstanding, which were held by approximately 373 shareholders of record.
The Company's ability to pay dividends to shareholders is dependent upon the
receipt of dividends from the Bank, because the Company currently has no
source of income other than the Bank. The Bank may not declare or pay
dividends on its common stock if such payment will cause its regulatory
capital to be reduced below minimum requirements imposed by OCC regulations.
The Company is also subject to certain regulatory restrictions imposed by the
Federal Reserve Board on the payment of dividends to its shareholders.
All stock prices and dividends have been restated to reflect a 10% stock
dividend effective June of 1998 of 2-for-1 stock split effective July of 1997.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
------------------------------
Board of Directors and Stockholders
Tri-State 1st Bank, Inc.
We have audited the consolidated balance sheet of Tri-State 1st Bank, Inc. and
Subsidiary as of December 31, 1998 and 1997, and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Tri-State
1st Bank, Inc. and Subsidiary as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ S.R. Snodgrass, A.C.
Wexford, PA
January 8, 1999
<PAGE>
TRI-STATE 1ST BANK, INC.
CONSOLIDATED BALANCE SHEET
December 31,
1998 1997
------------ ------------
ASSETS
Cash and due from banks $ 4,319,381 $ 4,031,922
Interest-bearing deposits with other banks 80,356 101,381
Federal funds sold 1,100,000 1,550,000
Investment securities available for sale 19,957,516 13,088,215
Investment securities held to maturity (market value
of $1,765,465 and $1,937,040) 1,699,589 1,897,147
Loans 28,939,322 26,012,431
Less allowance for loan losses 340,197 309,015
------------ ------------
Net loans 28,599,125 25,703,416
Premises and equipment 1,850,095 1,422,125
Accrued interest and other assets 697,365 531,750
------------ ------------
TOTAL ASSETS $ 58,303,427 $ 48,325,956
============ ============
LIABILITIES
Deposits:
Noninterest-bearing demand $ 8,362,305 $ 6,532,262
Interest-bearing demand 12,087,939 8,250,728
Money market 4,598,841 5,044,746
Savings 10,297,040 9,324,176
Time 16,003,144 13,751,635
------------ ------------
Total deposits 51,349,269 42,903,547
Securities sold under agreement to repurchase 1,500,000 500,000
Other borrowings 67,311 176,783
Accrued interest and other liabilities 309,134 230,847
------------ ------------
TOTAL LIABILITIES 53,225,714 43,811,177
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, no par value; 1,000,000 shares authorized,
451,869 shares issued and outstanding 3,890,423 2,894,500
Retained earnings 989,510 1,567,189
Net unrealized gain on securities 197,780 53,090
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 5,077,713 4,514,779
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 58,303,427 $ 48,325,956
============ ============
See accompanying notes to the consolidated financial statements.
<PAGE>
TRI-STATE 1ST BANK, INC.
CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31,
1998 1997
------------ ------------
INTEREST INCOME
Loans, including fees $ 2,655,293 $ 2,506,697
Interest-bearing deposits with other banks 3,547 3,267
Federal funds sold 231,715 134,047
Investment securities:
Taxable 693,116 517,233
Exempt from federal income tax 349,628 234,634
------------ ------------
Total interest income 3,933,299 3,395,878
------------ ------------
INTEREST EXPENSE
Deposits 1,581,659 1,305,364
Securities sold under agreement to repurchase 56,508 11,639
Other borrowings 7,944 15,084
------------ ------------
Total interest expense 1,646,111 1,332,087
------------ ------------
NET INTEREST INCOME 2,287,188 2,063,791
Provision for loan losses 54,272 54,195
------------ ------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,232,916 2,009,596
------------ ------------
OTHER OPERATING INCOME
Service fees on deposit accounts 302,233 248,522
Investment securities gains (losses) 6,141 (3,354)
Other 178,993 106,421
------------ ------------
Total other operating income 487,367 351,589
------------ ------------
OTHER OPERATING EXPENSE
Salaries and employee benefits 971,380 758,600
Occupancy 209,020 177,311
Furniture and equipment 167,641 135,654
Other 709,260 613,612
------------ ------------
Total other operating expense 2,057,301 1,685,177
------------ ------------
Income before income taxes 662,982 676,008
Income taxes 115,071 150,953
------------ ------------
NET INCOME $ 547,911 $ 525,055
============ ============
EARNINGS PER SHARE
Basic $ 1.21 $ 1.16
Diluted 1.20 1.16
See accompanying notes to the consolidated financial statements.
<PAGE>
TRI-STATE 1ST BANK, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net
Unrealized
Common Retained Gain (Loss) Comprehensive
Stock Earnings on Securities Total Income
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ 2,894,500 $ 1,159,212 $ (17,823) $ 4,035,889
Net income 525,055 525,055 $ 525,055
Other comprehensive income:
Unrealized gain on securities, net of
reclassification adjustment 70,913 70,913 70,913
-----------
Comprehensive income $ 595,968
===========
Dividends declared ($.26 per share) (117,078) (117,078)
----------- ----------- ----------- -----------
Balance, December 31, 1997 2,894,500 1,567,189 53,090 4,514,779
Net income 547,911 547,911 $ 547,911
Other comprehensive income:
Unrealized gain on securities, net of
reclassification adjustment 144,690 144,690 144,690
-----------
Comprehensive income $ 692,601
===========
Dividends declared ($.29 per share) (129,667) (129,667)
Ten percent stock dividend 995,923 (995,923)
----------- ----------- ----------- -----------
Balance, December 31, 1998 $ 3,890,423 $ 989,510 $ 197,780 $ 5,077,713
=========== =========== =========== ===========
1998 1997
----------- -----------
Components of comprehensive income:
Change in net unrealized gain on
investment securities held for sale $ 148,743 $ 68,699
Realized (gains) losses included in net
income, net of tax (4,053) 2,214
----------- -----------
Total $ 144,690 $ 70,913
=========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
TRI-STATE 1ST BANK, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31,
1998 1997
------------ ------------
OPERATING ACTIVITIES
Net income $ 547,911 $ 525,055
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 54,272 54,195
Depreciation and amortization, net 101,725 170,637
Investment securities (gains) losses (6,141) 3,354
Deferred income taxes 21,134 712
Increase in accrued interest receivable (146,110) (12,844)
Increase (decrease) in accrued interest payable (1,579) 5,940
Other (35,311) (265)
------------ ------------
Net cash provided by operating activities 535,901 746,784
------------ ------------
INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from sales 600,179 348,372
Proceeds from principal repayments
and maturities 4,990,211 3,259,230
Purchases of securities (12,228,271) (6,617,597)
Investment securities held to maturity:
Proceeds from principal repayments
and maturities 197,633 331,869
Net increase in loans (2,908,056) (1,709,734)
Purchase of premises and equipment (577,746) (177,899)
Proceeds from sale of real estate owned - 54,421
Branch acquisitions:
Purchase of loans - (330,219)
Purchase of premises and equipment - (157,000)
Net deposit proceeds - 2,334,890
------------ ------------
Net cash used for investing activities (9,926,050) (2,663,667)
------------ ------------
FINANCING ACTIVITIES
Net increase in deposits 8,445,722 1,742,537
Increase in securities sold under
agreement to repurchase 1,000,000 500,000
Principal payments on other borrowings (109,472) (102,373)
Cash dividends paid (129,667) (117,078)
------------ ------------
Net cash provided by financing activities 9,206,583 2,023,086
------------ ------------
Increase (decrease) in cash and cash equivalents (183,566) 106,203
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 5,683,303 5,577,100
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 5,499,737 $ 5,683,303
============ ============
See accompanying notes to the consolidated financial statements.
<PAGE>
TRI-STATE 1ST BANK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Basis of Presentation
- ----------------------------------------------
A summary of significant accounting and reporting policies applied in the
presentation of the accompanying financial statements follow:
Tri-State 1st Bank, Inc. (the "Company") is an Ohio corporation organized as
the holding company of the 1st National Community Bank (the "Bank"). The Bank
is a national banking association headquartered in East Liverpool, Ohio. The
Bank's principal sources of revenue emanate from its commercial, commercial
mortgage, residential real estate, consumer loan financing, and its investment
securities portfolio as well as a variety of deposit services offered to its
customers through three offices which are located in the East Liverpool and
Lisbon, Ohio and New Cumberland, West Virginia areas. The Company's principal
asset is represented by its ownership of the Bank. The Company is supervised
by the Board of Governors of the Federal Reserve System, while the Bank is
subject to regulation and supervision by the Office of the Comptroller of the
Currency.
The consolidated financial statements of the Company include its wholly-owned
subsidiary, the Bank. All intercompany transactions have been eliminated in
consolidation. The investment in subsidiary on the parent company financial
statements is carried at the Company's equity position in the underlying net
assets of the Bank. The financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the financial
statements, management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities as of the date of the
balance sheet and revenues and expenses for the period. Actual results could
differ significantly from those estimates.
Investment Securities
- ---------------------
Investment securities are classified at the time of purchase, based on
management's abilities and intention, as securities held to maturity or
available for sale. Debt securities acquired with the ability and intent to
hold to maturity are stated at cost adjusted for amortization of premium and
accretion of discount, which are computed using the interest method, and
recognized as adjustments of interest income. Other debt securities have been
classified as available for sale to serve principally for liquidity purposes.
Unrealized holding gains and losses for available for sale securities are
reported as a separate component of stockholders' equity, net of tax, until
realized. Realized securities gains and losses are computed using the
specific identification method. Interest and dividends on investment
securities are recognized as income when earned.
Common stock of the Federal Home Loan Bank and the Federal Reserve Bank
represents ownership in institutions that are wholly owned by other financial
institutions. These equity securities are accounted for at cost and are
classified as equity securities available for sale.
Loans
- -----
Loans are reported at their principal amount, net of the allowance for loan
losses. Interest on all loans is recognized as income when earned on the
accrual method. The Company's general policy is to stop accruing interest on
loans when it is determined that reasonable doubt exists as to the
collectibility of additional interest. Interest received on nonaccrual loans
is recorded as income or applied against principal according to management's
judgment as to the collectibility of principal.
Loan origination fees and certain direct loan origination costs are being
deferred and the net amount amortized as an adjustment of the related loan's
yield. The Company is amortizing these amounts over the contractual life of
the related loans.
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Loan Losses
- -------------------------
The allowance for loan losses represents the amount which management estimates
is adequate to provide for potential losses in its loan portfolio. The
allowance method is used in providing for loan losses. Accordingly, all loan
losses are charges and all recoveries are credits to the allowance. The
allowance for loan losses is established through a provision for loan losses
charged to operations. The provision for loan losses is based on management's
periodic evaluation of individual loans, economic factors, past loan loss
experience, changes in the composition and volume of the portfolio, and other
relevant factors. The estimates used in determining the adequacy of the
allowance for loan losses, including the amounts and timing of future cash
flows expected on impaired loans, are particularly susceptible to changes in
the near term.
Impaired loans are commercial and commercial real estate loans for which it is
probable the Company will not be able to collect all amounts due according to
the contractual terms of the loan agreement. The Company individually
evaluates such loans for impairment and does not aggregate loans by major risk
classifications. The definition of "impaired loans" is not the same as the
definition of "nonaccrual loans," although the two categories overlap. The
Company may choose to place a loan on nonaccrual status due to payment
delinquency or uncertain collectibility, while not classifying the loan as
impaired provided the loan is not of a commercial or commercial real estate
classification. Factors considered by management in determining impairment
include payment status and collateral value. The amount of impairment for
these types of loans is determined by the difference between the present value
of the expected cash flows related to the loan, using the original interest
rate, and its recorded value, or as a practical expedient in the case of
collateralized loans, the difference between the fair value of the collateral
and the recorded amount of the loans. When foreclosure is probable,
impairment is measured based on the fair value of the collateral.
Mortgage loans secured by one-to-four family properties and all consumer loans
are large groups of smaller balance homogeneous loans and are measured for
impairment collectively. Loans that experience insignificant payment delays,
which are defined as 90 days or less, generally are not classified as
impaired. Management determines the significance of payment delays on a case-
by-case basis taking into consideration all circumstances concerning the loan,
the credit worthiness and payment history of the borrower, the length of the
payment delay, and the amount of shortfall in relation to the principal and
interest owed.
Premises and Equipment
- ----------------------
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed on the straight-line method over the estimated useful
lives of the assets. Expenditures for maintenance and repairs are charged
against income as incurred. Costs of major additions and improvements are
capitalized.
Intangible Asset
- ----------------
The intangible asset consists exclusively of a core deposit acquisition
premium. This core deposit acquisition premium, which was developed based
upon a specific core deposit life study, is amortized using the straight-line
method over eight years. Annual assessments of carrying value and remaining
amortization periods are made to determine possible carrying value impairment
and appropriate adjustments as deemed necessary. This asset is a component of
other assets on the balance sheet.
Real Estate Owned
- -----------------
Real estate owned acquired in the settlement of foreclosed loans is carried as
a component of other assets at the lower of cost or fair value minus estimated
cost to sell. Valuation allowances for estimated losses are provided when the
carrying value of the real estate acquired exceeds the fair value. Direct
costs incurred in the foreclosure process and subsequent holding costs
incurred on such properties are recorded as expenses of current operations.
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Employee Benefits
- -----------------
Pension and other employee benefits include contributions to a defined
contribution Section 401(k) plan covering eligible employees. Contributions
matching those made by eligible employees and an elective contribution are
made annually at the discretion of the Board of Directors.
Stock Options
- -------------
The Company maintains a stock option plan for the Directors, officers, and
employees. The stock options typically have expiration terms of five years
subject to certain extensions and early terminations. The per share exercise
price of a stock option shall be, at a minimum, equal to the fair value of a
share of common stock on the date the option is granted. Because the exercise
price of the Company's stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized in the
Company's financial statements. Pro forma net income and earnings per share
are presented to reflect the impact of the stock option plan assuming
compensation expense had been affected based on the fair value of the stock
options granted under this plan.
Income Taxes
- ------------
Deferred tax assets and liabilities are reflected at currently enacted income
tax rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through
the provision for income taxes.
Earnings Per Share
- ------------------
The Company provides dual presentation of Basic and Diluted earnings per
share. Basic earnings per share utilizes net income as reported as the
numerator and the actual average shares outstanding as the denominator.
Diluted earnings per share includes any dilutive effects of options, warrants,
and convertible securities.
Stockholders' Equity
- --------------------
During 1998, retroactive recognition was given for the elimination of the
stated value of the Company's Common Stock. This caused the surplus to be
reduced to zero, with the balance of $1,610,750 being reclassified to Common
Stock. Such action had no effect on Total Stockholders' Equity disclosed
previously.
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 for all
periods presented. The Company has elected to report the effects of Statement
No. 130 as part of the Statement of Changes in Stockholders' Equity.
Cash Flow Information
- ---------------------
The Company has defined cash and cash equivalents as those amounts included in
the balance sheet captions Cash and due from banks, Interest-bearing deposits
with other banks, and Federal funds sold. Cash payments for interest expense
in 1998 and 1997 were $1,647,690 and $1,326,147, respectively. Cash payments
for income taxes in 1998 and 1997 were $157,816 and $156,137, respectively.
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Pending 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 consolidated balance sheet, 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.
In March 1998, the Accounting Standards Executive Committee issued Statement
of Position (SOP) 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." This SOP, which is effective for
fiscal years beginning after December 15, 1998, provides guidance on
accounting for the costs of computer software developed or obtained for
internal use and provides guidance for determining whether computer software
is for internal use. The Company will adopt SOP 98-1 in the first quarter of
1999 and does not believe the effect of adoption will be material.
2. EARNINGS PER SHARE
The following table sets forth the computation 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.
1998 1997
---------- ----------
Denominator:
Denominator for Basic earnings per
share-weighted-average shares 451,869 451,869
Employee stock options 6,559 -
---------- ----------
Denominator for Diluted earnings per
share-adjusted weighted-average
shares assumed conversions 458,428 451,869
========== ==========
3. STOCK DIVIDEND
On May 28, 1998, the Board of Directors approved a ten percent stock dividend
for security holders of record on June 26, 1998. As a result of this
dividend, 41,069 shares of Tri-State 1st Bank stock were issued. Fractional
shares were paid in cash.
Average shares outstanding and all per share amounts included in the
consolidated financial statements are based on the increased number of shares
giving retroactive effect to the stock dividend.
<PAGE>
4. INVESTMENT SECURITIES
The amortized cost and estimated market value of investment securities
available for sale are as follows:
<TABLE>
<CAPTION>
1998
---------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
other U.S. Government
agency securities $ 11,792,785 $ 65,966 $ (7,110) $ 11,851,641
Obligations of states and
political subdivisions 7,273,717 242,080 (3,053) 7,512,744
Mortgage-backed securities 354,396 1,983 (198) 356,181
------------ ------------ ------------ ------------
Total debt securities 19,420,898 310,029 (10,361) 19,720,566
Equity securities 236,950 - - 236,950
------------ ------------ ------------ ------------
Total $ 19,657,848 $ 310,029 $ (10,361) $ 19,957,516
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
1997
---------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
other U.S. Government
agency securities $ 8,577,254 $ 19,444 $ (31,540) $ 8,565,158
Obligations of states and
political subdivisions 3,979,340 90,926 (1,173) 4,069,093
Mortgage-backed securities 227,731 2,815 (32) 230,514
------------ ------------ ------------ ------------
Total debt securities 12,784,325 113,185 (32,745) 12,864,765
Equity securities 223,450 - - 223,450
------------ ------------ ------------ ------------
Total $ 13,007,775 $ 113,185 $ (32,745) $ 13,088,215
============ ============ ============ ============
</TABLE>
The amortized cost and estimated market value of investment securities held
to maturity are as follows:
<TABLE>
<CAPTION>
1998
---------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Obligations of states and
political subdivisions $ 1,498,790 $ 62,854 $ - $ 1,561,644
Mortgage-backed securities 200,799 3,022 - 203,821
------------ ------------ ------------ ------------
Total $ 1,699,589 $ 65,876 $ - $ 1,765,465
============ ============ ============ ============
</TABLE>
<PAGE>
4. INVESTMENT SECURITIES (Continued)
<TABLE>
<CAPTION>
1997
---------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Obligations of states and
political subdivisions $ 1,598,715 $ 38,950 $ (1,071) $ 1,636,594
Mortgage-backed securities 298,432 3,088 (1,074) 300,446
------------ ------------ ------------ ------------
Total $ 1,897,147 $ 42,038 $ (2,145) $ 1,937,040
============ ============ ============ ============
</TABLE>
The amortized cost and estimated market value of debt securities by
contractual maturity at December 31, 1998 are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
---------------------------------------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Due in one year or less $ 1,990,952 $ 1,995,987 $ 107,239 $ 108,247
Due after one year through
five years 10,063,216 10,154,072 745,387 761,602
Due after five years through
ten years 6,542,446 6,740,354 811,254 858,324
Due after ten years 824,284 830,153 35,709 37,292
------------ ------------ ------------ ------------
Total $ 19,420,898 $ 19,720,566 $ 1,699,589 $ 1,765,465
============ ============ ============ ============
</TABLE>
Proceeds from the sales of securities available for sale and the gross
realized gains and losses for the years ended December 31, 1998 and 1997 were
as follows:
1998 1997
------------ ------------
Proceeds from sales $ 600,179 $ 348,372
Gross realized gains 6,141 -
Gross realized losses - 3,354
Investment securities with an amortized cost of $5,550,039 and $2,949,386 and
an estimated market value of $5,559,221 and $2,941,301 were pledged to secure
public deposits, securities sold under agreements to repurchase, and other
purposes as required by law at December 31, 1998 and 1997, respectively.
<PAGE>
5. LOANS
Major classifications of loans are summarized as follows:
1998 1997
------------ ------------
Commercial and agricultural $ 4,449,554 $ 5,638,758
Real estate mortgages:
Residential 13,476,313 12,116,820
Commercial 6,772,323 4,482,295
Consumer 4,241,132 3,774,558
------------ ------------
28,939,322 26,012,431
Less allowance for loan losses 340,197 309,015
------------ ------------
Net loans $ 28,599,125 $ 25,703,416
============ ============
The Company grants consumer, commercial, and residential loans to customers
throughout its trade area that encompasses East Liverpool and Lisbon, Ohio,
New Cumberland, West Virginia, and the surrounding communities. Although the
Company has a diversified loan portfolio, a substantial portion of its
debtors' ability to honor their loan agreements is dependent upon the economic
stability of the tri-state area.
Non-performing loans are comprised of commercial, mortgage, and consumer loans
which are on a nonaccrual basis, or contractually past due 90 days or more as
to interest or principal payment but are not nonaccrual status because they
are well secured or in process of collection. The Company had non-performing
loans of $178,727 and $102,054 as of December 31, 1998 and 1997, respectively.
The Company had no impaired loans at December 31, 1998 or 1997.
As of December 31, 1998, aggregate loans of $60,000 or more extended to
officers, Directors, and related affiliates or associates were $677,392. A
summary of activity during the year is as follows:
Amount
1997 Additions Collected 1998
------------ ------------ ------------ ------------
$ 662,185 $ 646,400 $ 631,193 $ 677,392
6. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for the years ended December 31, 1998
and 1997 are as follows:
1998 1997
------------ ------------
Balance, January 1 $ 309,015 $ 290,247
Add:
Provision charged to operations 54,272 54,195
Recoveries 15,029 11,845
Less loans charged off 38,119 47,272
------------ ------------
Balance, December 31 $ 340,197 $ 309,015
============ ============
<PAGE>
7. PREMISES AND EQUIPMENT
Major classifications of premises and equipment are summarized as follows at
December 31:
1998 1997
------------ ------------
Land and improvements $ 318,560 $ 314,760
Buildings and improvements 1,278,481 1,061,373
Leasehold improvements 238,310 66,447
Furniture, fixtures, and equipment 935,010 762,086
------------ ------------
2,770,361 2,204,666
Less accumulated depreciation 920,266 782,541
------------ ------------
Total $ 1,850,095 $ 1,422,125
============ ============
Depreciation and amortization charged to operations was $149,776 in 1998 and
$128,689 in 1997.
8. DEPOSITS
Time deposits include certificates of deposit in denominations of $100,000 or
more. Such deposits aggregated $3,009,473 and $2,394,578 at December 31, 1998
and 1997, respectively.
Maturities on time deposits of $100,000 or more are as follows at December 31,
1998:
Three months or less $ 1,646,612
Three to twelve months 1,252,203
Over one year 110,658
------------
Total $ 3,009,473
============
9. SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE
The outstanding balances and related information for securities sold under
agreement to repurchase is summarized as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------------- ---------------------------
Amount Rate Amount Rate
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at year end $ 1,500,000 3.64% $ 500,000 4.49%
Average balance outstanding
during the year 1,278,461 4.42 258,064 4.51
Maximum amount outstanding
at any month end 1,500,000 500,000
</TABLE>
Average amounts outstanding during the year represent daily average balances
and average interest rates represent interest expense divided by the related
average balance.
Investments in U.S. Government agency securities with market values in excess
of outstanding balances of securities sold under agreement to repurchase have
been pledged at December 31, 1998 and 1997.
<PAGE>
10. OTHER BORROWINGS
The Bank has a line of credit with a borrowing limit of approximately $1.9
million with the Federal Home Loan Bank of Cincinnati ("FHLB") as of December
31, 1998. This credit line is subject to annual renewal and incurs no service
charges. Outstanding borrowings on this line, and the term loans noted below,
are collateralized by a blanket security agreement on qualifying residential
mortgage loans and the Bank's investment in stock of the FHLB. There were no
borrowings outstanding on this line of credit for the years ended December 31,
1998 or 1997.
The Bank also has two term loans outstanding with the FHLB totaling $67,311
and $176,983 at December 31, 1998 and 1997, respectively. These loans bear
interest rates of 6.70 percent and 6.75 percent (weighted average of 6.73
percent), respectively, during both years and have remaining payment periods
extending to August 1, 1999.
11. OTHER EXPENSES
The following is an analysis of other expenses:
1998 1997
------------ ------------
Stationery, printing, and supplies $ 121,557 $ 104,830
Postage 60,930 48,857
Professional services 77,473 67,185
Directors fees 46,250 37,350
State franchise tax 64,318 60,145
Other 338,732 295,245
------------ ------------
Total $ 709,260 $ 613,612
============ ============
12. INCOME TAXES
The provision for income taxes consists of:
1998 1997
------------ ------------
Current $ 93,937 $ 150,241
Deferred 21,134 712
------------ ------------
Total $ 115,071 $ 150,953
============ ============
The components of the net deferred tax liability are as follows at December
31:
1998 1997
------------ ------------
Deferred tax assets:
Provision for loan losses $ 99,956 $ 89,882
Other 3,596 -
------------ ------------
Gross deferred tax assets 103,552 89,882
------------ ------------
Deferred tax liabilities:
Net unrealized gain on securities 101,887 27,350
Depreciation 18,243 17,393
Accrual to cash conversion 75,463 45,568
Other 30,773 26,714
------------ ------------
Gross deferred tax liabilities 226,366 117,025
------------ ------------
Net deferred tax liability $ (122,814) $ (27,143)
============ ============
<PAGE>
12. INCOME TAXES (Continued)
The reconciliation of the federal statutory rate and the Company's effective
income tax rate is as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------------- ---------------------------
% of % of
Pre-tax Pre-tax
Amount Income Amount Income
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Provision at statutory rate $ 225,414 34.0 % $ 229,843 34.0 %
Effect of tax-free income (105,070) (15.8) (85,950) (12.7)
Other (5,273) (0.8) 7,060 1.0
------------ ------------ ------------ ------------
Actual tax expense and
effective rate $ 115,071 17.4 % $ 150,953 22.3 %
============ ============ ============ ============
</TABLE>
13. EMPLOYEE BENEFITS
Profit Sharing Plan and 401(k) Plan
- -----------------------------------
At December 31, 1997, the Bank had a trusteed, defined contribution profit
sharing plan cover substantially all employees and officers. Contributions to
this plan were determined annually by the Board of Directors. The
contribution to this plan for 1997 amounted to $18,360. Effective January 1,
1998, this trusteed, defined contribution plan was converted to a trusteed
Section 401(k) plan. The Bank makes matching contributions for eligible
employees of 25 percent of the employee contributions annually, to a maximum
of 12 percent of base salary. Substantially all employees and officers are
eligible to participate in the plan. The Bank's contribution to this plan was
$15,698 in 1998.
ESOP
- ----
The Company also maintains an Employee Stock Ownership Plan ("ESOP") covering
substantially all employees and officers. The Trustee has discretionary
authority to purchase shares of common stock of the Company in the open
market. The amount of the contribution to the ESOP is at the discretion of
the Board of Directors with benefits vesting over a seven-year period.
Contributions totaling $6,500 and $7,000 were recorded during 1998 and 1997,
respectively. The Trustee held 3,434 and 2,884 shares of the Company's common
stock at December 31, 1998 and 1997, respectively.
Stock Option Plan
- -----------------
On January 23, 1997, the Board of Directors approved and stockholders
subsequently ratified the formation of a stock option plan. The plan provides
for granting incentive stock options and nonstatutory stock options for
executive officers and nonemployee Directors of the Company. A total of
53,900 shares of authorized but unissued common stock were initially reserved
for issuance under the plan.
<PAGE>
13. EMPLOYEE BENEFITS (Continued)
No compensation expense has been recognized with respect to the options
granted under the stock option plan. Had compensation expense been determined
on the basis of fair value, net income and earnings per share would have been
reduced as follows:
1998 1997
Net Income:
As reported $ 547,911 $ 525,055
============ ============
Pro forma $ 473,229 $ 431,709
============ ============
Basic earnings per share:
As reported $ 1.21 $ 1.16
============ ============
Pro forma $ 1.05 $ 0.96
============ ============
Diluted earnings per share:
As reported $ 1.20 $ 1.16
============ ============
Pro forma $ 1.03 $ 0.96
============ ============
The following table presents share data related to the stock option plan:
Weighted-
Shares average
Under Exercise
Option Price
------------ ------------
Outstanding, January 1, 1997 - -
Granted 18,700 $19.09
Exercised - -
Forfeited - -
------------
Outstanding, December 31, 1997 18,700 $19.09
Granted 15,800 $28.00
Exercised - -
Forfeited (1,100) $19.09
------------
Outstanding, December 31, 1998 33,400 $23.30
============
Available for future grant 20,500
============
<PAGE>
14. COMMITMENTS
In the normal course of business, the Company makes various commitments not
reflected in the accompanying financial statements. The Company offers such
products to enable its customers to meet their financing objectives. The
instruments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the balance sheet. The Company's
exposure to credit loss is represented by the contractual amounts as disclosed
below. Losses, if any, are charged to the allowance for loan losses. The
Company minimizes its exposure to credit loss under these commitments by
subjecting them to credit approval, review procedures, and collateral
requirements as deemed necessary.
The off-balance sheet commitments were comprised of the following at December
31:
1998 1997
------------ ------------
Commitments to extend credit $ 4,804,106 $ 2,956,264
Standby letters of credit 173,372 75,894
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the loan agreement.
These commitments are comprised primarily of available commercial and personal
lines of credit and loans granted but not yet funded. The Company does not
charge fees for the customer credit lines. Since many of the commitments are
expected to expire without being fully drawn upon, the contractual amounts do
not necessarily represent future funding requirements.
Standby letters of credit represent conditional commitments issued by the
Company to guarantee the performance of a customer to a third party. These
instruments are issued primarily to support bid or performance-related
contracts. The coverage period for these instruments is typically a one-year
period with an annual renewal option subject to prior approval by management.
The Company holds collateral for these instruments as deemed necessary.
The Bank leases two branch office sites under agreements that expire by the
years 2002 and 2005, respectively. These branch agreements contain five-year
renewal options that are available if elected by the Bank. At
December 31, 1998, the minimum rental commitment for these noncancelable
operating leases is as follows:
1999 $ 71,796
2000 71,796
2001 71,796
2002 71,796
2003 61,381
2004 and thereafter 93,600
------------
Total $ 442,165
============
Occupancy expense includes rental expenditures of $62,815 and $50,880 for 1998
and 1997, respectively.
15. ACQUISITION OF BRANCH OFFICE
Effective August 29, 1997, the Bank, pursuant to a purchase and assumption
agreement entered into with United National Bank of West Virginia (Seller),
assumed deposit liabilities and acquired the branch banking property,
facility, all cash funds on-hand, and selected commercial and consumer loans
of the New Cumberland, West Virginia operations.
<PAGE>
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values at December 31 of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------------- ---------------------------
Carrying Fair Carrying Fair
Value Value Value Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks,
interest-bearing deposits with
with other banks, and federal
funds sold $ 5,499,737 $ 5,499,737 $ 5,683,303 $ 5,683,303
Investment securities 21,657,105 21,722,981 14,985,362 15,025,255
Net loans 28,599,125 29,858,000 25,703,416 26,093,000
Accrued interest receivable 358,904 358,904 318,956 318,956
------------ ------------ ------------ ------------
Total $ 56,114,871 $ 57,439,622 $ 46,691,037 $ 47,120,514
Financial liabilities:
Deposits $ 51,349,269 $ 51,556,000 $ 42,903,547 $ 43,015,000
Securities sold under agreement
to repurchase 1,500,000 1,500,000 500,000 500,000
Other borrowings 67,311 67,311 176,783 178,000
Accrued interest payable 55,402 55,402 73,417 73,417
------------ ------------ ------------ ------------
Total $ 52,971,982 $ 53,178,713 $ 43,653,747 $ 43,766,417
============ ============ ============ ============
</TABLE>
Financial instruments are defined as cash, evidence of an ownership interest
in an entity, or a contract which creates an obligation or right to receive or
deliver cash or another financial instrument from/to a second entity on
potentially favorable or unfavorable terms.
Fair value is defined as the amount at which a financial instrument could be
exchanged in a current transaction between willing parties other than in a
forced or liquidation sale. If a quoted market price is available for a
financial instrument, the estimated fair value would be calculated based upon
the market price per trading unit of the instrument.
If no readily available market exists, the fair value estimates for financial
instruments are based upon management's judgment regarding current economic
conditions, interest rate risk, expected cash flows, future estimated losses,
and other factors as determined through various option pricing formulas or
simulation modeling. As many of these assumptions result from judgments made
by management based upon estimates which are inherently uncertain, the
resulting estimated fair values may not be indicative of the amount realizable
in the sale of a particular financial instrument. In addition, changes in the
assumptions on which the estimated fair values are based may have a
significant impact on the resulting estimated fair values.
As certain assets such as deferred tax assets and premises and equipment are
not considered financial instruments, the estimated fair value of financial
instruments would not represent the full value of the Company.
<PAGE>
16. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
The Company employed simulation modeling in determining the estimated fair
value of financial instruments for which quoted market prices were not
available based upon the following assumptions:
Cash and Due from Banks, Interest-bearing Deposits with Other Banks, Federal
- ----------------------------------------------------------------------------
Funds Sold, Accrued Interest Receivable, Securities Sold Under Agreements to
- ----------------------------------------------------------------------------
Repurchase, and Accrued Interest Payable
- ----------------------------------------
The fair value is equal to the current carrying value.
Investment Securities
- ---------------------
The fair value of investment securities is equal to the available quoted
market price. If no quoted market price is available, fair value is estimated
using the quoted market price for similar securities.
Loans, Deposits, and Other Borrowings
- -------------------------------------
The fair value of loans is estimated by discounting the future cash flows
using a simulation model which estimates future cash flows and constructs
discount rates that consider reinvestment opportunities, operating expenses,
non- interest income, credit quality, and prepayment risk. Demand, savings,
and money market deposit accounts which are due within 30 days are valued at
the amount payable as of year end. Fair values for time deposits and other
borrowings are estimated using a discounted cash flow calculation that applies
contractual costs currently being offered in the existing portfolio to current
market rates being offered for deposits and notes of similar remaining
maturities.
Commitments to Extend Credit and Commercial Letters of Credit
- -------------------------------------------------------------
These financial instruments are generally not subject to sale, and estimated
fair values are not readily available. The carrying value, represented by the
net deferred fee arising from the unrecognized commitment or letter of credit,
and the fair value, determined by discounting the remaining contractual fee
over the term of the commitment using fees currently charged to enter into
similar agreements with similar credit risk, are not considered material for
disclosure. The contractual amounts of unfunded commitments and letters of
credit are presented in Note 14.
17. REGULATORY MATTERS
Cash and Due from Banks
- -----------------------
The district Federal Reserve Bank requires the Bank to maintain certain
reserve balances. As of December 31, 1998 and 1997, the Bank had required
reserves of $552,000 and $434,000, respectively, comprised of vault cash and a
depository amount held with the Federal Reserve Bank.
Loans
- -----
Federal law prevents the Company from borrowing from the Bank unless the loans
are secured by specific obligations. Further, such secured loans are limited
in amount to ten percent of the Bank's capital.
<PAGE>
17. REGULATORY MATTERS (Continued)
Dividends
- ---------
The Bank is subject to a dividend restriction that generally limits the amount
of dividends that can be paid by a national bank. Prior approval of the
Comptroller of the Currency is required if the total of all dividends declared
by a national bank in any calendar year exceeds net profits, as defined for
the year, combined with its retained net profits for the two preceding
calendar years less any required transfers to surplus. Using this formula,
the amount available for payment of dividends by the Bank to the Company in
1999, without approval of the Comptroller, will be limited to $834,320 plus
1999 net profits retained up to the date of the dividend declaration.
Capital Requirements
- --------------------
The Company and the Bank are subject to various regulatory capital
requirements administered by federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary actions by the regulators that, if undertaken, could
have a direct material effect on the Company's and the Bank's financial
statements. Under capital adequacy guidelines and the regulatory framework
for prompt corrective action, an entity must meet specific capital guidelines
that involve quantitative measures of the assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting practices.
The entity's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, Risk weightings, and
other factors.
Quantitative measures established by the regulation to ensure capital adequacy
require an entity to maintain minimum amounts and ratios of Total and Tier I
capital (as defined in the regulations) to Risk-weighted assets (as defined),
and of Tier I capital to average assets (as defined). Management believes, as
of December 31, 1998 and 1997, that the Company and the Bank meet all capital
adequacy requirements to which they are subject.
As of December 31, 1998, the most recent notification from the appropriate
regulatory authorities categorized the Company and Bank as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, an entity must maintain minimum Total Risk-
based, Tier I Risk-based, and Tier I Leverage ratios at least 100 to 200 basis
points above those ratios set forth in the table. There have been no
conditions or events since that notification that management believes have
changed this category.
<PAGE>
17. REGULATORY MATTERS (Continued)
Capital Requirements (Continued)
- -------------------------------
The capital position of the Company does not materially differ from the
Bank's; therefore, the following table sets forth the Company's capital
position and minimum requirements as of December 31:
<TABLE>
<CAPTION>
1998 1997
--------------------------- ---------------------------
Amount Ratio Amount Ratio
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Total Capital to
Risk-weighted Assets
- ---------------------------
Actual $ 5,106,895 16.64% $ 4,640,404 17.62%
For Capital Adequacy 2,455,680 8.00 2,107,040 8.00
To Be Well Capitalized 3,069,600 10.00 2,633,800 10.00
Tier I Capital to
Risk-weighted Assets
- ---------------------------
Actual $ 4,766,698 15.53% $ 4,331,389 16.45%
For Capital Adequacy 1,227,840 4.00 1,053,520 4.00
To Be Well Capitalized 1,841,760 6.00 1,580,280 6.00
Tier I Capital to Average Assets
- ---------------------------
Actual $ 4,766,698 8.19% $ 4,331,389 8.81%
For Capital Adequacy 2,329,200 4.00 1,971,480 4.00
To Be Well Capitalized 2,911,500 5.00 2,464,350 5.00
</TABLE>
18. PARENT COMPANY
Following are condensed financial statement for the parent company:
CONDENSED BALANCE SHEET
December 31,
1998 1997
------------ ------------
ASSETS
Cash $ 8,800 $ -
Investment in subsidiary bank 5,041,638 4,469,714
Other assets 27,824 45,065
------------ ------------
TOTAL ASSETS $ 5,078,262 $ 4,514,779
============ ============
TOTAL LIABILITIES $ 549 $ -
STOCKHOLDERS' EQUITY 5,077,713 4,514,779
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY $ 5,078,262 $ 4,514,779
============ ============
<PAGE>
18. PARENT COMPANY (Continued)
CONDENSED STATEMENT OF INCOME
December 31,
1998 1997
------------ ------------
INCOME
Dividends from subsidiary $ 131,620 $ 137,473
EXPENSES 16,643 29,551
------------ ------------
Income before income taxes 114,977 107,922
Income tax benefit (5,700) (10,047)
------------ ------------
Income before equity in undistributed
earnings of subsidiary 120,677 117,969
Equity in undistributed earnings
of subsidiary 427,234 407,086
------------ ------------
NET INCOME $ 547,911 $ 525,055
============ ============
CONDENSED STATEMENT OF CASH FLOWS
December 31,
1998 1997
------------ ------------
OPERATING ACTIVITIES
Net income $ 547,911 $ 525,055
Adjustment to reconcile net income
to net cash provided by operating
activities:
Equity in undistributed earnings
of subsidiary (427,234) (407,086)
Other, net 17,790 (891)
------------ ------------
Net cash provided by operating
activities 138,467 117,078
------------ ------------
FINANCING ACTIVITIES
Cash dividends paid (129,667) (117,078)
------------ ------------
Net cash used for financing
activities (129,667) (117,078)
------------ ------------
Net increase in cash 8,800 -
CASH AT BEGINNING OF PERIOD - -
------------ ------------
CASH AT END OF PERIOD $ 8,800 $ -
============ ============
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following is Management's discussion and analysis of the financial
condition and results of operations of Tri-State 1st Bank, Inc. for the years
ended December 31, 1998 and 1997. The discussion should be read in
conjunction with the consolidated financial statements and notes thereto and
the summary financial information included elsewhere in this annual report.
Business
- --------
Tri-State 1st Bank, Inc. (the "Company") is the parent company for 1st National
Community Bank (the "Bank"). The Company was formed as an Ohio corporation on
April 24, 1996, to own and control all of the capital stock of the Bank, a
national banking association. The Company is a bank holding company which,
under existing laws, is restricted to activities generally relating to
banking. At the present time, the Company does not actively conduct any
business, and does not intend to employ any individuals other than officers
who do not receive compensation for serving such capacity, but utilizes the
support staff and facilities of the Bank from time to time. 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 June 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.
The Company's results of operations are dependent on the operations of the
Bank. The Bank's results of operations are primarily dependent on its net
interest income, which is the difference between interest earned on its loans
and investment securities portfolio and other interest earning assets, and its
cost of funds consisting of interest expense paid on its deposits and other
borrowings. Net interest income is also affected by the relative amounts of
interest earning assets and liabilities. Net income of the Bank is also
impacted by its provision for loan losses, as well as other operating income
and expenses. Other operating income consists primarily of service charges on
deposit accounts, while other operating expenses is comprised of salaries and
employee benefits, occupancy expenses, and other general and administrative
expenses. Earnings of the Bank are impacted by general local economic,
competitive and regulatory conditions, particularly changes in market
interest, and actions of regulatory agencies.
Management Strategy
- -------------------
The Company's philosophy is to combine quality personal service and strategic
office locations to offer a variety of loan and deposit products tailored to
fit the needs of its customers. While the Company has no specific plans to
significantly expand its branch network, management is continually identifying
and assessing opportunities for future expansion.
The Bank's lending strategy has historically focused on the origination and
retention of a balance in its portfolio of real estate commercial mortgages,
one-to-four family mortgage loans and, to a lessor extent, working capital
commercial loans in the form of credit lines and term notes, personal loans,
automobile loans and home equity loans. Commercial real estate loans are
granted for the acquisition or improvement of real estate. Generally,
commercial real estate loans do not exceed 70% of the appraised value of the
property pledged to secure the transaction. The focus and the application of
prudent underwriting standards by the Bank is designed to reduce the risk of
loss on its loan portfolio.
<PAGE>
Management Strategy (Continued)
- ------------------------------
To measure the relationship of interest-earning assets and interest-bearing
liabilities and their impact on net interest income, the Bank maintains an
asset/liability management program. One of the principal functions of the
program is to monitor the level to which the balance sheet is subject to
interest rate risk. The goal of the program is to manage the relationship
between interest-earning assets and interest-bearing liabilities to minimize
the fluctuations in net interest spread and achieve constant growth in net
interest income during periods of changing interest rates. To accomplish its
strategies, adjustable-rate residential mortgage and commercial loans are
originated, as well as shorter-term consumer loans. The investment portfolio,
which is used primarily for liquidity purposes, has historically been
comprised of short-term (three to five years) U.S. Treasury and Agency
obligations and AA and AAA tax-exempt Municipal and State obligations.
Although management typically holds investment securities purchased until
maturity, approximately 92.2% of the portfolio was classified as available for
sale to allow management the flexibility in managing the portfolio in a
changing market rate environment.
The Bank attempts to manage the interest rates it pays on deposits, while
maintaining a stable to growing deposit base by providing convenient and
quality service and competitive rates to its customers. Historically, the
Bank has had minimal borrowings, which originated through a credit arrangement
with the Federal Home Loan Bank of Cincinnati, Ohio ("FHLB"), and has relied
upon its customer deposit base as its primary source of funds.
Summary of Financial Condition
- ------------------------------
The consolidated assets of Tri-State 1st Bank were $58,303,000 at December 31,
1998, an increase of $9,977,000 or 20.6% over assets at December 31, 1997. The
strong asset growth for 1998 was fueled by the Company's exceptional deposit
growth experienced throughout 1998. Total deposits increased $8,446,000 or
19.7% and were used to fund the $6,672,000 or 44.5% increase in total
investment securities and the $2,927,000 or 11.3% in loans receivable. Total
earning assets which principally include loans, investment securities and
federal funds sold equaled $51,777,000 at December 31, 1998 and represented an
increase of $9,128,000 or 21.4% over total earning assets at December 31,
1997. The composition of earning assets changed moderately from 1997 to 1998,
with loans and securities comprising 55.9% and 41.8% of earning assets,
respectively, in 1998 compared to 61.0% and 35.1%, respectively, at year-end
1997.
Investment Securities and Securities Available for Sale
- -------------------------------------------------------
The investment activities of the Company serve a key role in managing the
overall yield on earning assets while supporting interest rate sensitivity and
liquidity positions. Securities purchased with the intent and ability to
retain until maturity are classified as held to maturity and carried at
amortized cost. All other securities are classified as securities available
for sale and are carried at market value.
The investment securities available for sale portfolio serves 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. The investment securities
available for sale portfolio was $19,958,000 at December 31, 1998 compared to
$13,088,000 at December 31, 1997, an increase of $6,869,000 or 52.5%. The
significant increase for 1998 was attributable to the strong influx of deposit
growth in the same period. Management's overall investment strategy for 1998
was 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.
Investment securities held to maturity decreased $197,000 or 10.4% in 1998
when compared to the prior year. This decrease was attributable to scheduled
maturities and principal repayments as there were no additions to the held to
maturity portfolio in 1998.
<PAGE>
Loans
- -----
Loans grew 11.3% in 1998, increasing to $28,939,000 at December 31, 1998 from
$26,012,000 at prior end of year. Total loans originated for 1998 were
$13,343,000. The result of this growth was due to an overall increase in loan
demand, which relates in part to a sound local and national economy. Also
contributing to 1998's loan growth was the addition of a Business Development
Officer whose primary role is to focus on generating lending activity in
conjunction with developing other new business in 1st National Community
Bank's market area.
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 its customers. Total deposits increased
$8,446,000 or 19.7% when compared to total deposits at December 31, 1997.
Money Market accounts decreased by $446,000 or 8.8% while savings increased
$973,000 or 10.4%. The Company's core growth occurred mostly in noninterest
and interest-bearing demand deposits and time deposits which increased
$1,830,000 or 28.0%, $3,837,000 or 46.5%, and $2,252,000 or 16.4%,
respectively. The overall growth in deposits for 1998 corresponds to the
addition of the New Cumberland and Wal-Mart offices as well as 1st National
Community Bank's ongoing commitment 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, which consist of repurchase agreements and
advances with the Federal Home Loan Bank of Cincinnati, increased $891,000 or
131.7% at December 31, 1998 from year-end 1997. Securities sold under
repurchase agreements increased $1,000,000 or 200.0% when compared to the
prior year period. The repurchase agreements are made with "in-market"
customers of the bank and are collateralized by various securities, which are
returned to the Company at the maturity of the agreements. Other borrowings
decreased $109,000 or 62.0% as a result of scheduled principal and interest
pay-downs on two advances with the Federal Home Loan Bank of Cincinnati. Both
advances are scheduled to mature in mid 1999.
Summary of Earnings
- -------------------
The Company's 1998 net income was $547,911, increasing $22,856, or 4.4%, from
1997's net income of $525,055. On a per share basis net income for 1998 was
$1.21 and $1.20 reflected on a basic and diluted earnings per share basis,
respectively. This compares to 1997's net income per share of $1.16 (for
basic and diluted). Average shares outstanding, which are used to calculate
net income on a per share basis, increased by 10% in 1998 as a result of Tri-
State paying a stock dividend to shareholders in June of 1998. The increase
in net income for 1998 was achieved through strong increases in net interest
income and noninterest income, offset by increases in noninterest expenses.
Interest Income
- ---------------
Interest income on loans increased $149,000 or 5.9% during 1998 when compared
to 1997. This increase was a result of a $1,745,000 or 6.9% increase in the
average loan balance outstanding during the 1998 period offset by a decrease
of 9 basis points on the yield earned.
Interest income on federal funds sold increased $98,000 or 72.9% during 1998
when compared to 1997. This increase was a result of a $1,817,000 or 72.9%
increase in the average balance outstanding during the 1998 period offset by a
decrease on the yield earned.
<PAGE>
Interest Income (Continued)
- --------------------------
Interest income earned on investment securities increased in 1998 by $291,000
or 38.7% from 1997. This increase was a result of an increase of $5,413,000 or
41.8% in the average balance outstanding offset by a decrease in the yield
earned on the investment portfolio.
Interest Expense
- ----------------
Interest expense on deposits for 1998 increased $276,000 or 21.2% over 1997's
interest expense due to a $6,665,000 or 19.5% increase in total average
interest-bearing deposits outstanding in 1998 as well as an increase in the
cost of funds paid on these deposits during the same period.
Interest expense on repurchase agreements and other borrowings increased
$38,000 or 141.2% in 1998 when compared to 1997. This increase was due to an
increase of $914,000 or 189.5% in the average balance of borrowed funds
outstanding, offset by a decrease 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 is the principal source of the Company's earnings. Interest
rate fluctuations, as well as changes in the amounts and type of earning
assets and interest-bearing liabilities combine to effect net interest income.
Net interest income for 1998 totaled $2,287,000, an increase of $223,000, or
10.8%, over 1997. The increase in net interest income was the result of an
increase in Tri-State's average earning assets offset by a slight decrease on
the yield earned on these assets, offset by lessor increases in the average
balance and cost of funds on interest-bearing liabilities.
Interest on loans to and investments in securities of states and political
subdivisions are not fully subject to federal income tax. As such, the pretax
yields stated on these assets are lower than taxable assets of similar risk
and maturity. Therefore, it is also meaningful to analyze net interest income
on a tax equivalent basis. The tax equivalent adjustment is based on the
federal corporate income tax rate of 34%. Net interest income on a tax
equivalent basis increased $282,000, or 12.9%, in 1998. The following table
illustrates the increase in actual and tax equivalent net interest income:
Year Ended December 31, Increase
---------------------- ---------------
1998 1997 $ %
---------- ---------- -------- ----
Net interest income, actual $2,287,000 $2,064,000 $223,000 10.8%
Tax equivalent adjustment 180,000 121,000 59,000 48.6%
---------- ---------- -------- ----
Tax equivalent net interest income $2,467,000 $2,185,000 $282,000 12.9%
Net interest margin is equal to net interest income on a tax equivalent basis
divided by average earning assets. It is affected by changes in the level of
earning assets, the proportion of earning assets funded by noninterest-bearing
liabilities and interest rate spread. The table that follows illustrates that
the net interest margin was 4.95% in 1998 compared to 5.35% in 1997. The
decrease of 40 basis points in the net interest margin was mostly attributable
to an overall lower rate earned on total interest-earning assets and a
slightly higher cost of funds on interest-bearing liabilities.
<PAGE>
TRI-STATE 1st BANK
AVERAGE BALANCES AND AVERAGE YIELDS
DECEMBER 31, 1998
Average Balances and Average Yields
- -----------------------------------
The following table sets forth certain information relating to the Company's
average balance sheets and statements of income for the years ended December
31, 1998 and 1997, and reflects the average yield on assets and average cost
of liabilities for the periods indicated. Such yields and costs are derived
by dividing income or expense by the average daily balance of assets or
liabilities, respectively, for the periods shown.
<TABLE>
<CAPTION>
For the Year Ended
-----------------------------------------------------------------------------------
1998 1997
---------------------------------------- ----------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------------ ------------ ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold $ 4,310,739 $ 235,262 5.46% $ 2,493,315 $ 137,314 5.51%
Taxable investment securities 11,215,192 693,116 6.18% 8,227,090 517,233 6.29%
Non taxable investment
securities (2) 7,153,918 529,739 7.40% 4,728,974 355,506 7.52%
Loans (1)(2) 27,137,753 2,655,293 9.78% 25,393,216 2,506,697 9.87%
------------ ------------ ---------- ------------ ------------ ----------
Total interest-earning assets 49,817,602 4,113,410 8.26% 40,842,595 3,516,750 8.61%
------------ ------------
Noninterest-earning assets 5,339,074 4,772,492
------------ ------------
Total assets $ 55,156,676 $ 45,615,087
============ ============
Interest-bearing liabilities:
Interest bearing demand $ 10,418,043 291,579 2.80%$ 8,034,694 219,879 2.74%
Money market accounts 4,917,706 143,090 2.91% 4,938,197 147,874 2.99%
Savings deposits 9,809,517 286,792 2.92% 8,428,795 254,004 3.01%
Time deposits 15,766,396 860,698 5.46% 12,844,941 683,659 5.32%
Repurchase agreements 1,278,461 56,508 4.42% 258,064 11,587 4.49%
Other borrowings 118,440 7,944 6.71% 224,416 15,084 6.72%
------------ ------------ ---------- ------------ ------------ ----------
Total interest-bearing
liabilities 42,308,563 1,646,611 3.89% 34,729,107 1,332,087 3.84%
------------ ------------
Noninterest-bearing liabilities 8,032,615 6,619,639
Stockholders' equity 4,815,498 4,266,341
------------ ------------
Total liabilities and
stockholders' equity $ 55,156,676 $ 45,615,087
============ ============
Net earning assets $ 7,509,039 $ 6,113,488
============ ============
Net interest income $ 2,466,799 $ 2,184,663
============ ============
Net interest spread (3) 4.37% 4.78%
========== ==========
Net interest margin (4) 4.95% 5.35%
========== ==========
</TABLE>
(1) For the purpose of these computations, non-accrual loans (if any) are
included in the daily average loan amounts outstanding and interest on
loans includes fee income.
(2) Yields are computed on a tax equivalent basis using a 34% federal income
tax rate.
(3) Net interest rate spread represents the difference between the average
yield on interest-earning assets, and the average cost of
interest-bearing liabilities.
(4) Net interest margin is calculated by dividing the difference between
total interest earned and total paid by total interest earning assets.
<PAGE>
Rate/Volume Analysis
- --------------------
The following table presents the extent to which changes in interest rates
and changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to (i) changes attributable to changes in volume (changes) in volume
multiplied by prior rate), (ii) changes attributable to changes in rate
(changes in rate multiplied by prior volume) and (iii) the changes
attributable to the combined impact of volume and rate. The change in
interest rate due to both rate and volume in the rate/volume analysis table
have been allocated to changes due to rate and volume in proportion to the
absolute amounts of the changes in each.
<TABLE>
<CAPTION>
For the Year Ended December 31, For the Year Ended December 31,
1998 vs. 1997 1997 vs. 1996
------------------------------------ ------------------------------------
Increase (Decrease) Due to: Increase (Decrease) Due to:
------------------------------------ ------------------------------------
Total Total
Increase Increase
Volume Rate (Decrease) Volume Rate (Decrease)
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold $ 99,211 $ (1,227) $ 97,984 $ (19,475) $ 5,009 $ (14,466)
Taxable investment securities 184,434 (8,819) 175,615 36,527 14,063 50,590
Nontaxable investment securities (1) 179,302 (5,531) 173,771 92,779 (1,043) 91,736
Loans 170,356 (22,594) 147,762 269,735 (9,021) 260,714
---------- ---------- ---------- ---------- ---------- ----------
Total interest-earning assets 633,303 (38,171) 595,132 379,566 9,008 388,574
---------- ---------- ---------- ---------- ---------- ----------
Interest-bearing liabilities:
Interest-bearing demand 66,609 4,946 71,555 15,167 (2,933) 12,234
Money market accounts (610) (3,936) (4,546) 3,717 (2,294) 1,423
Savings deposits 39,982 (7,251) 32,731 27,016 0 27,016
Time deposits 159,003 16,465 175,468 57,583 (3,461) 54,122
Repurchase agreements 45,087 (166) 44,921 0 11,587 11,587
Other borrowings (7,111) (22) (7,133) (6,666) 0 (6,666)
---------- ---------- ---------- ---------- ---------- ----------
Total interest-bearing liabilities 302,960 10,036 312,996 96,817 2,899 99,716
---------- ---------- ---------- ---------- ---------- ----------
Net change in net interest income $ 330,343 $ (48,207) $ 282,136 $ 282,749 $ 6,109 $ 288,858
========== ========== ========== ========== ========== ==========
</TABLE>
(1) Computed on a tax equivalent basis using a 34% federal income tax rate.
<PAGE>
Provision and Allowance for Loan Losses
- ---------------------------------------
The current expense reflecting expected credit losses is referred to as the
provision for loan losses on the consolidated statements of income. Actual
losses on loans are charged against the allowance for loan losses, which is a
reserve built up on the consolidated balance sheet. The Company's policy is
to charge-off loans when, in Management's opinion, the collection of loan
principal is in doubt. All loans charged-off are subject to continuous review
and concerted efforts are made to maximize the recovery of charged-off loans.
In order to determine the adequacy of the allowance for loan losses,
Management considers the risk classification of loans, delinquency trends,
charge-off experience, credit concentrations, economic conditions, year 2000
issues and other relevant factors. The allowance is maintained at a level
determined according to established methodologies by charging the provision to
operations.
The provision for loan losses charged to operations in 1998 and 1997 was
$54,000. Actual losses, net of recoveries, were $23,000 in 1998, and
$35,000 in 1997. Net charge-offs as a percentage of the balance of the
allowance for loan losses at the beginning of the year was 7.5% and 12.2% in
1998 and 1997, respectively. The amount of the provision for both periods was
based on such factors as the increase in the balance of the loan portfolio
outstanding and Management's ongoing analysis of the adequacy of the allowance
for loan losses.
Tri-State's allowance for loan losses increased at year-end 1998 to $340,000
from $309,000 at December 31,1997. At December 31, 1998 the allowance
represented 1.18% of loans compared to 1.19% at year-end 1997. The Company
believes that the allowance for loan losses at December 31, 1998 of $340,000
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 December 31, 1998.
Noninterest Income
- ------------------
Total noninterest income increased $136,000 or 38.6% in 1998 compared to 1997.
Other income increased $73,000 or 68.2% in 1998 and was attributable to an
increase in ATM-related fees, an increase in insurance commissions and an
overall increase in other related service fees. Service fees on deposit
accounts increased $54,000 or 21.6% which was related to the increase in the
number of deposit accounts serviced by the bank. Net gains or (losses) from
the sale of securities increased in 1998 as a result of the sale of $600,000
in investment securities available for sale at a gross gain of $6,000 compared
to a gross loss of $3,000 from the sale of $348,000 securities in 1997.
Noninterest Expense
- -------------------
Total salary and employee benefits increased $213,000 or 28.0% in 1998.
Salaries and wages increased $180,000 or 27.2% primarily due to the hiring of
additional personnel throughout 1998, and to a lessor extent, normal merit
increases relating to existing employees. Total full-time equivalent
employees increased 17% in 1998 as a result of increased staffing level needs
and the opening of the new Wal-Mart in-store branch. Total employee benefit
costs also increased in 1998 with much of the increase stemming from increased
health insurance costs.
Net occupancy expense increased $32,000 or 17.9% in 1998 and was primarily
associated with the addition of the Wal-Mart in-store branch office as well as
an overall general increase in occupancy costs.
Furniture and equipment expense increased $32,000 or 23.6% from 1997 to 1998.
This increase is attributable to increases in capital investments relating to
new equipment and furniture and resulted in higher depreciation costs. In
addition, the Bank opened the Wal-Mart in-store branch office during 1998,
also increasing furniture and equipment costs.
<PAGE>
Noninterest Expense (Continued)
- ------------------------------
Other expenses increased $96,000 or 15.6%, in 1998 which was due to increases
in overall general and administrative expenses such as, stationery and
printing, postage and telephone costs, accounting and exam related fees and
MAC expenses.
The provision for income tax was $115,000 in 1998 compared to $151,000 in
1997. This represents a decrease of $36,000 or 23.8% and is due to an
increase in tax exempt income, offset by an overall decrease in taxable
income.
Capital Resources
- -----------------
The Company's total consolidated stockholders' equity increased $563,000 or
12.5% when compared to total stockholders' equity at December 31, 1997. The
increase is primarily a result of a retention of net income of $418,000, net
of cash dividends declared to shareholders of $130,000 and an increase of
$145,000 in the net unrealized gain on investment securities available for
sale. Total cash dividends of $.29 per share were paid to stockholders in
1998 compared to $.26 per share in 1997. The resulting dividend payout ratio
was 23.7% in 1998 and 22.2% in 1997.
Impact of Inflation and Changing Prices
- ---------------------------------------
The financial statements and related data have been prepared in accordance
with general accepted accounting principles which require the measurement of
financial position and operating results in terms of historical dollars,
without consideration for changes in the relative purchasing power of money
over time caused by inflation.
The effects on inflation on the local economy and Tri-State's operating
results have been relatively modest for the past several years. However,
unlike industrial companies, nearly all of the assets and liabilities of a
financial institution are monetary in nature. As a result, interest rates
have a more significant impact on a financial institution's performance than
general levels of inflation. Interest rates do not necessarily move in the
same direction or in the same magnitude as the price of goods or services,
since such goods and services are affected by inflation. In the current
interest rate environment, liquidity and the maturity structure of the Bank's
assets and liabilities are critical to the maintenance of the acceptable
performance levels.
Year 2000
- ---------
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 coming 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 and
has established an overall integral plan to address system-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, 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. The Company has given Year 2000 activities highest priority
throughout 1998 and 1999 and is scheduled to have all major systems ready for
the Year 2000 by mid 1999. In addition, 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.
<PAGE>
Year 2000 (Continued)
- --------------------
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.
The Company does not anticipate any significant additional costs to ensure
Tri-State's readiness for the Year 2000 beyond regularly scheduled software
and hardware upgrades. Based upon current estimates, the Company does not
expect to incur more than $50,000 (pre-tax) in Year 2000 remediation expenses.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1998
<CASH> 4,319
<INT-BEARING-DEPOSITS> 80
<FED-FUNDS-SOLD> 1,100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 19,958
<INVESTMENTS-CARRYING> 1,700
<INVESTMENTS-MARKET> 1,765
<LOANS> 28,939
<ALLOWANCE> 340
<TOTAL-ASSETS> 58,303
<DEPOSITS> 51,349
<SHORT-TERM> 1,567
<LIABILITIES-OTHER> 309
<LONG-TERM> 0
0
0
<COMMON> 3,890
<OTHER-SE> 1,188
<TOTAL-LIABILITIES-AND-EQUITY> 58,303
<INTEREST-LOAN> 2,655
<INTEREST-INVEST> 1,043
<INTEREST-OTHER> 235
<INTEREST-TOTAL> 3,933
<INTEREST-DEPOSIT> 1,582
<INTEREST-EXPENSE> 1,646
<INTEREST-INCOME-NET> 2,287
<LOAN-LOSSES> 54
<SECURITIES-GAINS> 6
<EXPENSE-OTHER> 2,057
<INCOME-PRETAX> 663
<INCOME-PRE-EXTRAORDINARY> 663
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 548
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.20
<YIELD-ACTUAL> 4.95
<LOANS-NON> 0
<LOANS-PAST> 179
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 309
<CHARGE-OFFS> 38
<RECOVERIES> 15
<ALLOWANCE-CLOSE> 340
<ALLOWANCE-DOMESTIC> 340
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE>
TRI-STATE 1ST BANK, INC.
P. O. Box 796
East Liverpool, Ohio, 43920
Notice of Annual Meeting of Shareholders
to be held April 14, 1999 at the offices of
1st National Community Bank, 16924 St. Clair Avenue, East Liverpool, Ohio
Dear Tri-State 1st Bank, Inc. Shareholder:
You are cordially invited to attend the 1999 Annual Meeting of the
Shareholders of Tri-State 1st Bank, Inc., an Ohio corporation ("1st Bank"), on
Wednesday, April 14, 1999. The meeting will be held at the new executive
offices of 1st National Community Bank at 16924 St. Clair Avenue, East
Liverpool, Ohio, at 7:00 P.M. 1st National Community Bank ("1st National") is
a wholly- owned subsidiary of 1st Bank. Whether or not you will attend the
Annual Meeting of the Shareholders, I urge you to immediately sign and return
the enclosed Proxy in the envelope provided casting your vote on these
important issues.
You are being asked to consider and vote on the following proposals:
1. To set the number of Class 3 Directors to be elected at three (3)
members of the Board of Directors and to elect three (3) Class 3 Directors
each for a term of three (3) years to serve until the year 2002 A.D., or until
the next meeting of Shareholders called for the purpose of electing Class 3
Directors. All three (3) of the current Class 3 Directors have been nominated
for reelection.
2. To ratify the appointment of S. R. Snodgrass, A.C., as the
independent certified public accountants for 1st Bank in 1999.
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The close of business on March 10, 1999, has been fixed as the record
date for the determination of Shareholders entitled to notice of and to vote
at the Annual Meeting or any adjournment thereof.
By Order of the Board of Directors
St. Clair Township, Ohio
March 14, 1999
Keith R. Clutter
Secretary
YOUR VOTE IS IMPORTANT
Please complete, sign, date and return the enclosed proxy so that your shares
will be represented at the meeting. If you choose to attend the meeting, you
may revoke your proxy and personally cast your votes.
<PAGE>
TRI-STATE 1ST BANK, INC.
P. O. BOX 796
EAST LIVERPOOL, OHIO, 43920
1999 Annual meeting
PROXY STATEMENT
Proxies, Solicitation and Voting
This Proxy Statement is furnished to the shareholders ("Shareholders") of
Tri-State 1st Bank, Inc. ("1st Bank") in connection with the solicitation by
the 1st Bank management, by order of the Board of Directors, of proxies
("Proxies") for use at the Annual Meeting of Shareholders to be held on April
14, 1999, and at any adjournment thereof, for the purposes set forth in the
accompanying Notice of Annual Meeting of Shareholders.
The enclosed Proxy Card is for use at the Annual Meeting if a Shareholder is
unable to attend the Annual Meeting in person or wishes to have his shares of
common stock, no par value, of 1st Bank (the "Common Stock") voted by Proxy
even if he attends the Annual Meeting. The Proxy may be revoked by the person
giving it at any time before it is exercised, by notice to the Secretary of
1st Bank, by executing and delivering a Proxy having a later date, or by such
persons appearing at the Annual Meeting and electing to vote in person. All
shares of Common Stock of 1st Bank represented by valid Proxies received
pursuant to this solicitation, and not revoked before they are exercised, will
be voted at the Annual Meeting. The execution of a Proxy will in no way
affect a Shareholder's right to attend the Annual Meeting and vote in person.
The election of Class 3 Directors and the appointment of S. R. Snodgrass A.C.
as the Company's auditors, both require the affirmative vote of a majority of
votes cast, at a meeting at which the holders of a majority of the outstanding
Common Stock are present in person or by proxy. Abstentions and broker
non-votes will be included in determining the number of shares present at the
Annual Meeting of Shareholders but will not be included in determining the
number of votes cast and as a result will not be considered in determining the
outcome of the vote.
Holders of Common Stock of record at the close of business on March 10, 1999,
(the "Record Date") will be entitled to vote at the Annual Meeting and at any
adjournment thereof. At the close of business on the Record Date, 1st Bank
had issued and outstanding 451,869 shares of Common Stock. In the election of
Class 3 Directors, and in deciding all other questions presented at the Annual
Meeting of Shareholders, each Share- holder will be entitled to one vote for
each share of Common Stock held by him.
The cost of soliciting Proxies will be borne by 1st Bank. In addition to the
use of the mails, Proxies may be solicited by personal contact or telephone.
If applicable, banks, brokers, nominees and fiduciaries will be required to
forward the soliciting material to the
- 2 -
<PAGE>
principals and obtain authorization for the execution of Proxies. 1st Bank
will, upon request, reimburse banks, brokers and other institutions, nominees
and fiduciaries for their expenses in forwarding Proxy material to the
principals.
ELECTION OF DIRECTORS [Proposal No. 1]
The persons named in the accompanying Proxy will vote for the election of the
nominees named below as Class 3 Directors, unless otherwise directed by the
Shareholders giving Proxies. All nominees are now Class 3 Directors and all
have consented to be named and to serve if elected. The Bylaws of 1st Bank
provide that the number of Directors to be elected at the Annual Meeting of
the Shareholders will be determined by resolution of the Board of Directors or
the Shareholders. The number of Directors has been fixed at nine, divided
into three equal Classes of three: Class 1, Class 2 and Class 3. The current
term of the Class 3 Directors expires at the Annual Meeting and three Class 3
Directors are to be elected at the Annual Meeting, each for a three year term.
Provided a quorum is present, Class 3 Directors will be elected by the
affirmative vote of not less than a majority of all shares present in person
or represented by Proxy at the Annual Meeting. At each meeting of
Shareholders for the election of Directors at which a quorum is present, the
persons receiving the greatest number of votes shall be deemed elected
Directors. Any Shareholder may cumulate his votes at an election of Directors
upon fulfillment of the conditions prescribed in Section 1701.55 of the Ohio
Revised Code, or any similar statute which may hereafter be enacted. Such
Section generally requires that a Shareholder desiring to cumulate voting give
advance notice in writing at least 48 hours before the Annual Meeting of his
or her desire that the voting at the Annual Meeting be cumulative and that
announcement of the giving of such notice be at the commencement of the Annual
Meeting. Upon fulfillment of these notice requirements, each Shareholder has
the right to cumulate the voting power he or she possesses and to give one
candidate as many votes as the number of Directors to be elected multiplied by
the number his or her votes equals, or to distribute his or her votes on the
same principle among two or more candidates as he or she sees fit.
The Proxy solicited hereby cannot be voted for the election of a person to
fill a directorship for which no nomination has been duly made.
Nominations for election to the Board of Directors may be made by any
Shareholder entitled to vote for the election of Directors. Any such
nomination shall contain the following information: (i) the name and address
of the proposed nominee; (ii) the principal occupation of the nominee; (iii)
the total number of shares of Common Stock that to the knowledge of the
nominating Shareholder will be voted for the proposed nominee; (iv) the name
and residential address of each nominating Shareholder; (v) the number of
shares of Common Stock owned by the nominating Shareholder; (vi) the total
number of shares of Common Stock that to the knowledge of the nominating
Shareholder
- 3 -
<PAGE>
are owned by the proposed nominee; (vii) the signed consent of the proposed
nominee to serve on the Board, if elected. Such nomination shall be delivered
to the Secretary of the 1st Bank not later than the opening of business at the
Annual Meeting.
Nominations not made in accordance herewith may be disregarded by the
chairperson of the meeting, and upon the chairperson's instructions the vote
tellers may disregard all votes cast for each such nominee. If, at the time of
the Annual Meeting of Shareholders, any of the nominees named in the Proxy
Statement should be unable or decline to serve as a Class 3 Director, the
Proxies are authorized to be voted for such substitute nominee or nominees as
the Board of Directors recommends. The Board of Directors has no reason to
believe that any nominee will be unable or decline to serve as a Class 3
Director.
Set forth below are the names of the nominees for election to the Board of
Directors as Class 3 Directors and certain information furnished by such
nominees to 1st Bank concerning themselves. The persons named below will be
nominated for election to serve until the 2002 A.D. Annual Meeting of the
Shareholders. It is the intention of the persons named in the Proxy to vote
"For" the resolution establishing the number of Class 3 Directors at three (3)
persons and to vote "For" the election of these three (3) nominees.
RECOMMENDATION
The Board of Directors recommends that the Shareholders vote "For" the
proposal. Proxies solicited by the Board of Directors will be voted in favor
of this proposal unless a contrary vote or abstention is specified.
<TABLE>
<CAPTION>
Nominees for the Class 3 Directors
<S> <C> <C> <C> <C> <C>
Name Age Position and Offices Director Present and Principal
Held at 1st Bank and Since Occupation for last
Subsidiaries five years
Charles B. Lang 59 Director; President of 1987 President of 1st Bank;
1st Bank; Chairman and Chairman & CEO of
CEO of 1st National 1st National (banking)
R. Lynn Leggett 51 Director -1st Bank; 1st 1996 Funeral Director, Eells-
National Leggett Funeral Home
(funeral services)
John C. Thompson 72 Director - 1st Bank; 1st 1987 Chairman of The
National Hall China Company
(pottery manufacturing)
</TABLE>
- 4 -
<PAGE>
IDENTIFICATION OF OTHER DIRECTORS AND EXECUTIVE OFFICERS
The following persons are (i) current Directors of 1st Bank who are serving as
either Class 1 Directors, whose terms expire in 2000, or Class 2 Directors,
whose terms expire in 2001, and/or (ii) executive officers of 1st National.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Name Age Position and Offices Director Present and Principal
- ---- --- Held at 1st Bank Since Occupation for last five
and Subsidiaries ----- years
---------------- -----
CLASS 1 DIRECTORS
William E. Blair, Jr. 63 Director - 1st Bank; 1st 1991 President of Bill Blair
National Inc. (oil and gas
exploration)
Stephen W. Cooper 55 Director - 1st Bank; 1st 1989 President of Cooper
National Insurance Agency
(general insurance)
Marvin H. Feldman 53 Director - 1st Bank; 1st 1987 Partner in The
National Feldman Agency
(life insurance)
CLASS 2 DIRECTORS
Keith R. Clutter 55 Director; Secretary of 1987 Secretary of 1st Bank;
1st Bank; President of President 1st National
1st National (banking)
G. Allen Dickey 68 Director - 1st Bank; 1st 1987 Chairman of D. W.
National Dickey & Son, Inc.
(construction materials)
John P. Scotford, Sr. 70 Director - 1st Bank; 1st 1987 Chairman, McBarscot
National Company
(automobile dealer)
</TABLE>
- 5 -
<PAGE>
<TABLE>
<CAPTION>
OTHER EXECTIIVE OFFICERS
<S> <C> <C> <C>
Name Age Position and Offices Present and Principal
- ---- --- Held at 1st Bank Occupation for last five
and Subsidiaries years
---------------- -----
Kevin Anglemyer 34 Chief Financial Officer Chief Financial Officer
CPA since 1998; over 7 years
of banking experience
Roger D. Sanford 50 Vice President - 1st Vice President and
National Branch Manager of 1st
National since 1992;
Assistant Vice President
of 1st National from 1990
to 1992; over 27 years of
banking experience
R. Keith Broadbent 55 Vice President - 1st Vice President of 1st
National National since April 1996;
Loan Officer of 1st
National since October
1995; over 30 years of
banking experience
Steven A. Mabbot 42 Vice President - Vice President and
1st National and Loan Department
Manager of 1st Bank;
since 1994; over 11 years
of banking experience
Vickie L. Owens 37 Assistant Vice President - Assistant Vice President
1st National and Supervisor of Data
Processing; since 1991;
over 20 years of banking
experience
Judy A. Mouse 31 Assistant Cashier - Assistant Cashier and
1st National Supervisor; since 1988;
over 10 years of banking
experience
</TABLE>
- 6 -
<PAGE>
BOARD OF DIRECTOR AND COMMITTEE MEETINGS
During 1998, the Board of Directors of 1st Bank held 3 regular meetings of the
Board. 1st Bank has no standing audit, nominating, compensation or other
committees of the Board of Directors. All of 1st Bank's Directors attended at
least 75% of its Board meetings except Director John P. Scotford, Sr. who
attended none of the three meetings. The Directors of 1st Bank also
constitute the entire Board of Directors of 1st National Community Bank, a
wholly-owned subsidiary of 1st Bank. There were 12 meetings of the Board of
Directors of 1st National. All of 1st National's Directors attended at least
75% of its Board meetings except Director John P. Scotford, Sr. who attended
42% of the meetings. Director Scotford travels extensively and lives at a
Florida residence for a good portion of each year.
EXECUTIVE COMPENSATION
The following table reflects the compensation paid by 1st National Bank during
1998, 1997 and 1996 for services in all capacities by the Chairman & CEO. No
employee received an annual salary and bonus in excess of $100,000. More
specific information regarding compensation is provided in the notes
accompanying the tables.
Summary Compensation Table
Annual Compensation
Salary Bonus
(A) (A)
Name and Position Year ($) ($)
---------------------------------------------------------------------
Charles B. Lang 1998 $64,972 $3,428
Chairman & CEO 1997 62,800 1,256
1996 59,750 3,235
________________________________________________________________________
(A) Amounts shown include all cash compensation earned and received by the
named executive officer.
OPTIONS/SAR GRANTS/INCENTIVE PLANS
1st Bank does have in place a stock option plan which was approved by the
Shareholders at their annual meeting on March 19, 1997. A committee was
chosen by the Board of Directors of 1st National comprised of Directors but
not including any executive officers of either 1st Bank or 1st National for
the purpose of awarding options to purchase Common Stock of 1st Bank to
deserving officers and Directors for the year 1998. Under the Plan, there are
53,300 shares of 1st Bank stock eligible for distribution under the stock
option plan.
- 7 -
<PAGE>
Effective August 27, 1998, 15,800 share options were granted to 14 officers
and Directors of 1st National at an exercise price of $28.00 per share for a
term of five (5) years to expire in five years on August 26, 2003 A.D. The
Fair Market Value per share on August 27, 1998, was $28.00 per share. A total
of 8,800 Incentive Stock Options were granted to seven key officers and 7,000
Non-Qualified Stock Options were granted to seven Directors. These are the
first and only shares to date granted under the Plan.
The following table describes the individual stock options granted to the
Chief Executive Officer of 1st Bank and 1st National during the year 1998:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants to Executive Officers
- -----------------------------------------------------------------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees Base Expiration
Name Granted (#) in fiscal year Price ($/Sh) Date
- -----------------------------------------------------------------------------
Charles B. Lang 3,200 36% $28.00 8/26/2003
The following table describes each exercise of stock options and SARs during
the year 1998 by the named executive officer of 1st National and 1st Bank:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAK YEAR
AND FY-END OPTION/SAR VALUES
- -----------------------------------------------------------------------------
Number of
Securities Value
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
Shares at FY-End (#) at FY-End (#)
Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized Unexercisable Unexercisable
- -----------------------------------------------------------------------------
Charles B. Lang None $0 7,600/0 $77,204/$0
- 8 -
<PAGE>
There are no other stock option or stock appreciation rights plans, nor are
there any long-term incentive plans for employees of 1st Bank or 1st National.
COMPENSATION OF DIRECTORS
For the year 1998, no compensation was paid to any Directors of 1st Bank for
their services to the holding company. No compensation was paid to Directors
Lang and Clutter as Directors of 1st National, who are compensated in their
capacity as officers of 1st National. Compensation paid to each of the
remaining seven outside Directors of 1st National was as follows: an annual
retainer of $2,200; $230 for each of the 12 Board meetings attended; and $230
for each Executive Committee attended (three outside Directors are assigned to
each of the monthly Executive Committee meetings). $175 was paid to the four
members of the Audit Committee for each of the two meetings attended, and also
to the six non-officer Director members of the Future Directions and New
Office Expansion Committee for the four meeting held provided that they had
attended.
EMPLOYMENT ARRANGEMENTS
1st Bank has not entered into any employment contracts with any of its
executive officers, nor is there any arrangement, plan or agreement in effect
between 1st Bank and any executive officer providing for compensation to be
paid in the event of the resignation, retirement or termination of any such
officer or in the event of a change in control of 1st Bank.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
As of March 10, 1999, there were 451,869 shares of Common Stock issued and
outstanding and 33,400 stock options to purchase unissued shares of which
31,025 stock options are owned by current Directors and officers of 1st
National. The following table sets forth information as of March 10, 1999,
with respect to beneficial ownership of 1st Bank's Common Stock by: (I) all
persons known to 1st Bank to be considered to own beneficially more than five
(5%) percent of its voting securities; (ii) all Directors and Director
nominees of 1st Bank; and (iii) all of 1st Bank's officers and Directors as a
group. Unless otherwise stated, each person so named exercises or would
exercise sole voting power and investment power as to the shares of Common
Stock so indicated.
- 9 -
<PAGE>
Amount and
Nature of
Name and Address Beneficial
of Beneficial Owner Ownership(1) Percentage of Class
- ----------------------------------------------------------------------------
William E. Blair, Jr. 6,500 (2) 1.34%
13004 Woodworth Road
New Springfield, OH 44443
Keith R. Clutter 4,240 (3) *
2642 Carter Street
East Liverpool, OH 43920
Stephen W. Cooper 2,540 (4) *
933 Park Boulevard
East Liverpool, OH 43920
G. Allen Dickey 15,575 (5) 3.22%
6938 State Route 45
Lisbon, OH 44432
Marvin H. Feldman 25,475 (6) 5.27%
932 Midway Lane
East Liverpool, OH 43920
Charles B. Lang 41,963 (7) 8.67%
R. D. #1, Box 255
Chester, WV 26034
R. Lynn Leggett 4,700 (8) *
425 Chestnut Street
Lisbon, OH 44432
John P. Scotford 37,575 (9) 7.77%
7316 Christopher Drive
Poland, OH 44514
John C. Thompson 8,535 (10) 1.77%
913 Park Boulevard
East Liverpool, OH 43920
R. Keith Broadbent 720 (11) *
1321 Riverview Street
East Liverpool, OH 43920
Kevin Anglemyer 500 (12) *
126 Ambrose Drive
Clinton, PA., 15026
Roger D. Sanford 2,375 (13) *
50621 Stagecoach Road
East Liverpool, OH 43920
- 10 -
<PAGE>
Amount and
Nature of
Name and Address Beneficial
of Beneficial Owner Ownership(1) Percentage of Class
- ----------------------------------------------------------------------------
Steven A. Mabbott 1,000 (14) *
15792 Highland Drive
East Liverpool, OH., 43920
All Directors and Executive
Officers as a group 151,698 31.26%
* Indicates that the percentage of shares beneficially owned does not
exceed 1% of the class.
(1) For the purposes of this table, shares are considered "beneficially"
owned if the person directly or indirectly has the sole or shared
power to vote or direct the voting of the securities or the sole or
shared power to dispose of or direct the disposition of the
securities. A person is also considered to beneficially own shares
that such person has the right to acquire within 60 days. In
computing the percentage of ownership for each nominee, director and
principal officer and the group, the shares covered by exercisable
stock options held by such nominee, director, principal officer and
group are deemed outstanding. In calculating the percentage of class
owned, the total number of shares issued and outstanding have been
increased to reflect the number of shares that would be outstanding.
(2) Includes 2,200 shares owned of record, 2,200 shares owned in the name
of his spouse and 2,100 stock options.
(3) Includes 440 shares owned of record and 3,800 stock options.
(4) Includes 440 shares owned of record and 2,100 stock options.
(5) Includes 440 shares owned of record, 12,760 shares owned in trust and
in the name of his spouse and 2,375 stock options.
(6) Includes 440 shares owned of record, 22,660 shares owned jointly with
his spouse, in the name of his spouse, in the name of his spouse in
Trust and held in corporate name, and 2,375 stock options.
(7) Includes 10,040 shares owned of record, 24,323 shares held in Trust,
an IRA custodial account and as Co-Trustee of the Francis H. Lang
Trust, and 7,600 stock options.
(8) Includes 440 shares owned of record, 2,710 shares owned jointly with
his spouse in broker accounts and 1,550 stock options.
(9) Includes 440 shares owned of record, 34,760 shares held in Trust from
himself and in Trust in the name of his spouse and 2,375 stock
options.
(10) Includes 6,160 shares owned of record and 2,375 stock options.
(11) All 220 shares are owned jointly with another person and 500 stock
options.
(12) All 500 shares are by stock option.
(13) All 2,375 shares are by stock option.
(14) All 1,000 shares are by stock option.
- 11 -
<PAGE>
SECTION 16 (a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the federal securities laws, 1st Bank Directors, officers and persons
holding more than ten percent (10%) of 1st Bank's stock are required to
report, within specified monthly and annual due dates, their initial ownership
of Common Stock and all subsequent acquisitions, dispositions or other
transfers of beneficial interests therein, if and to the extent reportable
events occur which require reporting by such due dates. 1st Bank is required
to describe in this Proxy Statement whether, to its knowledge, any person
required to file such a report may have failed to do so in a timely manner.
1st Bank is not aware of any untimely filing.
RATIFICATION OF S. R. SNODGRASS, A.C. [PROPOSAL NO. 2]
The Board of Directors of 1st Bank has appointed S. R. Snodgrass as
independent auditors to examine the financial statements of 1st Bank and its
subsidiaries for the fiscal year ending December 31, 1999, and have directed
that such appointment be submitted for ratification by the Shareholders at the
Annual Meeting.
The affirmative vote of the majority of the shares represented at the Annual
Meeting and entitled to vote is required for ratification. Management
recommends the appointment of S.R. Snodgrass be ratified by Shareholders.
Representatives of S.R. Snodgrass are expected to be present at the Annual
Meeting. S.R. Snodgrass has represented 1st Bank since its formation and has
represented 1st National since its charter was granted in 1987 and has served
the Board of Directors in that capacity for nearly 12 year.
RECOMMENDATION
The Board of Directors recommends that the Shareholders vote "For" the
proposal. Proxies solicited by the Board of Directors will be voted in favor
of this proposal unless a contrary vote or abstention is specified.
- 12 -
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since the beginning of the 1st Bank's 1998 fiscal year, 1st Bank has been a
party to the transactions described as follows with certain of its Directors,
officers or Shareholders owning more than 5% of the 1st Bank Common Stock or
business controlled by such persons or any member of the immediate family of
any of such persons:
William E. Blair, Jr., a Director of 1st Bank, has obtained two lines of
credit and one demand note from 1st National in the maximum aggregate
principal amount of $370,000. The balance outstanding at February 28, 1999,
was $101,505. The rate of interest on the outstanding balance is the New York
Prime rate (currently 7.75%) plus 1%.
Keith R. Clutter, a Director of 1st Bank, has obtained an overdraft line of
credit in the principal amount of $1,000 from 1 st National. The balance
outstanding at February 28, 1999, was $917. The rate of interest on the
outstanding balance is 16%.
Stephen W. Cooper, a Director of 1st Bank, has obtained a term loan and a line
of credit in the aggregate principal amount of $114,697 from 1st National.
The aggregate balance outstanding at February 28, 1999, was $121,623. The
rates of interest on the loans are New York Prime rate plus 1 1/2% and 11%
respectively.
G. Allen Dickey, a Director of 1st Bank, has obtained a line of credit and an
overdraft line of credit in the aggregate principal amount of $125,000 from 1
st National. The aggregate balance outstanding at February 28, 1999, was $0.
The rates of interest on the lines of credit are New York Prime rate plus 1%
and 16% respectively.
Marvin H. Feldman, a Director of 1st Bank, has obtained a line of credit in
the original principal amount of $300,000 and a member of his immediate family
has obtained a loan in the original principal amount of $13,046 from 1st
National. The aggregate balance outstanding at February 28, 1999, was
$306,338. The rates of interest on the loans are National Prime (currently
8.5%) plus 1% and 9% respectively.
Charles B. Lang, a Director and officer of 1st Bank, has obtained a real
estate mortgage and an installment loan in the aggregate original principal
amount of $76,521 from 1st National. The aggregate balance outstanding on
February 28, 1999, was $74,968. The rates of interest on the loans are 8% and
8.5% respectively.
R. Lynn Leggett, a Director of 1st Bank, has obtained two lines of credit in
the original principal amount of $60,000 and two term loans in the original
principal amounts of $38,044 from 1st National. The aggregate balance
outstanding on February 28, 1999, was $66,464. The rates of interest on the
lines of credit are National Prime Rate +2% and National Prime Rate +1% and on
the two term loans is 7.5%
- 13 -
<PAGE>
OTHER MATTERS TO COME BEFORE THE MEETING [PROPOSAL NO. 3]
No other matters are intended to be brought before the Annual Meeting by 1st
Bank, nor does 1st Bank know of any other matters to be brought before the
Annual Meeting by others. If other matters properly come before the meeting,
the persons named in the Proxy will vote the shares represented therein in
accordance with the judgment of management on any such matters.
SHAREHOLDER PROPOSALS
Shareholders who desire to submit proposals at 1st Bank's 2000 Annual Meeting
of Shareholders must submit such proposals so that they are received by 1st
Bank no later than October 26, 1999, in order to be considered for inclusion
in 1st Bank's 2000 Proxy materials. Such shareholder proposals as well as any
questions relating thereto, should be submitted to Tri-State 1st Bank, Inc.,
16924 St. Clair Avenue, P. O. Box 796, East Liverpool, Ohio 43920, Attn.:
Secretary.
GENERAL
Upon written request to 1st Bank by any Shareholder whose Proxy is solicited
hereby, 1st Bank will furnish a copy of its Annual Report on Form 10-K for the
year ended December 31, 1998, as filed with the Securities and Exchange
Commission, together with financial statements and schedules thereto, without
charge to the Shareholder requesting the same. Requests should be directed to
the attention of Keith R. Clutter, Secretary, at P. O. Box 796, East
Liverpool, Ohio 43920.
By Order of the Board of Directors
Keith R. Clutter,
Secretary
- 14 -
<PAGE>
PROXY CARD
Tri-State 1st Bank, Inc.
P. O. Box 796
East Liverpool, Ohio 43920
PLEASE CHECK THE APPROPRIATE SPACES BELOW
The undersigned hereby appoints Hazel C. Schreckengost and Nancy Thompson
Cope, and each of them, each with the power to appoint her substitute, to
represent the undersigned and to vote all of the shares of Common Stock in
Tri-State 1st Bank, Inc. ("1st Bank") held of record by the undersigned at the
close of business on March 10, 1999, at the Annual Meeting of Shareholders of
1st Bank to be held at the main office of 1st National Community Bank, 16924
St. Clair Avenue, East Liverpool, Ohio, on Wednesday, April 14, 1999, at 7:00
P.M., and at any adjournment thereof.
A vote FOR the following proposals is recommended by the Board of Directors:
The shares represented hereby shall be voted as specified. If no
specification is made, such shares shall be voted FOR proposals 1, 2 and 3.
Whether or not you are able to attend the meeting, you are urged to sign and
mail the Proxy in the return envelope provided so that your stock may be
represented at the meeting.
1. ELECTION OF DIRECTORS
Election of the three (3) nominees listed below as members of 1st Bank's
Board of Directors as Class 3 Directors.
Charles B. Lang _____ FOR _____ AGAINST _____ ABSTAIN
R. Lynn Leggett _____ FOR _____ AGAINST _____ ABSTAIN
John C. Thompson _____ FOR _____ AGAINST _____ ABSTAIN
2. TO RATIFY the selection by the Board of Directors of S.R.
Snodgrass, A.C., as 1st Bank's independent public auditors for the 1999
fiscal year.
_____ FOR _____ AGAINST _____ ABSTAIN
3. Transaction of such other business as may properly come before the
meeting or any postponement or adjournments thereof.
_____ FOR _____ AGAINST _____ ABSTAIN
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF 1ST BANK
Signature (s)
- ------------------------------------ -----------------------------------
- ------------------------------------ -----------------------------------
(Please print or type name [s]) (Please print or type name[s])
NOTE: Sign exactly as your name(s) appear on your stock certificate. If
shares of stock are held of record in the names of two or more persons or in
the name of husband and wife, whether as joint tenants or otherwise, both or
all such persons should sign. If shares of stock are held of record by a
corporation, the Proxy should be executed by the President or other authorized
officer, and the corporate seal should be affixed thereto. If shares of stock
are held of record by a partnership, the Proxy should be executed in
partnership name by an authorized person. Executors or administrators or
other fiduciaries who execute the Proxy for a deceased shareholder should give
their full title. Please date the Proxy.
