SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 33-302132
TRI-STATE, 1ST BANK, INC.
-------------------------
(Exact name of small business issuer as specified in its charter)
OHIO 34-1824708
---- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
16924 St. Clair Avenue
P.O. Box 796
East Liverpool, Ohio 43920
---------------------------
(Address of principal executive offices)
(330)385-9200
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirement for the past 90 days.
Yes X No
--- ---
As of August 10, 2000 there were 667,313 shares outstanding of the issuer's
class of common stock.
Transitional small business disclosure format: Yes No X
----- -----
<PAGE>
TRI-STATE, 1ST BANK, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-QSB
Page
Reference
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Part I - Financial Information
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheet 3
Consolidated Statement of Income 4-5
Consolidated Statement of Changes in Stockholders'
Equity 6
Consolidated Statement of Cash Flows 7
Notes to Consolidated Financial Statements 8-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-17
Part II Other Information 18
Signatures 19
<PAGE>
TRI-STATE 1ST BANK, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30, December 31,
2000 1999
---------- ----------
(In thousands)
ASSETS
Cash and due from banks $ 6,884 $ 5,167
Interest-bearing deposits with other banks 63 81
Federal funds sold 4,025 100
Investment securities available for sale 21,720 21,002
Investment securities held to maturity
(market value of $1,855 and $1,891) 1,858 1,884
Loans 36,938 32,586
Less allowance for loan losses 416 375
---------- ----------
Net Loans 36,522 32,211
Premises and equipment 2,135 2,099
Accrued interest and other assets 1,031 912
---------- ----------
TOTAL ASSETS $ 74,238 $ 63,456
========== ==========
LIABILITIES
Deposits:
Noninterest - bearing demand $ 9,825 $ 7,802
Interest - bearing demand 16,555 12,163
Money market 4,194 4,637
Savings 11,274 10,490
Time 18,972 18,585
---------- ----------
Total deposits 60,820 53,677
Short-term borrowings 5,387 4,489
Accrued interest and other liabilities 266 172
---------- ----------
TOTAL LIABILITIES 66,473 58,338
---------- ----------
STOCKHOLDERS' EQUITY
Common stock, no par value; 1,000,000 shares
authorized; 667,313 and 574,940 issued
and outstanding 6,571 4,085
Retained earnings 1,657 1,397
Accumulated other comprehensive loss (463) (364)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 7,765 5,118
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 74,238 $ 63,456
========== ==========
See accompanying unaudited notes to the consolidated financial statements.
3
<PAGE>
TRI-STATE 1ST BANK, INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Three Months Ended
June 30,
-----------------------
2000 1999
--------- ---------
(In thousands)
INTEREST INCOME
Interest and fees on loans $ 833 $ 695
Interest-bearing deposits with other banks 1 1
Federal funds sold 83 55
Investment securities:
Taxable 205 179
Exempt from federal income tax 128 114
--------- ---------
Total interest income 1,250 1,044
--------- ---------
INTEREST EXPENSE
Deposits 432 408
Short-term borrowings 59 23
--------- ---------
Total interest expense 491 431
--------- ---------
NET INTEREST INCOME 759 613
Provision for loan losses 30 19
--------- ---------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 729 594
--------- ---------
NONINTEREST INCOME
Service fees on deposit accounts 117 84
Other 53 41
--------- ---------
Total noninterest income 170 125
--------- ---------
NONINTEREST EXPENSE
Salaries and employee benefits 321 270
Occupancy 73 63
Furniture and equipment 44 45
Other 215 180
--------- ---------
Total noninterest expense 653 558
--------- ---------
INCOME BEFORE INCOME TAXES 246 161
Income taxes 46 14
--------- ---------
NET INCOME $ 200 $ 147
========= =========
EARNINGS PER SHARE
Basic $ 0.30 $ 0.26
Diluted 0.30 0.25
See accompanying unaudited notes to the consolidated financial statements.
4
<PAGE>
TRI-STATE 1ST BANK, INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Six Months Ended
June 30,
-----------------------
2000 1999
--------- ---------
(In thousands)
INTEREST INCOME
Interest and fees on loans $ 1,624 $ 1,364
Interest-bearing deposits with other banks 2 2
Federal funds sold 123 98
Investment securities:
Taxable 400 356
Exempt from federal income tax 256 224
--------- ---------
Total interest income 2,405 2,044
--------- ---------
INTEREST EXPENSE
Deposits 856 795
Short-term borrowings 109 43
--------- ---------
Total interest expense 965 838
--------- ---------
NET INTEREST INCOME 1,440 1,206
Provision for loan losses 52 34
--------- ---------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 1,388 1,172
--------- ---------
NONINTEREST INCOME
Service fees on deposit accounts 229 162
Other 101 93
--------- ---------
Total noninterest income 330 255
--------- ---------
NONINTEREST EXPENSE
Salaries and employee benefits 632 539
Occupancy 140 128
Furniture and equipment 89 87
Other 449 351
--------- ---------
Total noninterest expense 1,310 1,105
--------- ---------
INCOME BEFORE INCOME TAXES 408 322
Income taxes 55 38
--------- ---------
NET INCOME $ 353 $ 284
========= =========
EARNINGS PER SHARE
Basic $ 0.54 $ 0.50
Diluted 0.53 0.49
See accompanying unaudited notes to the consolidated financial statements.
5
<PAGE>
TRI-STATE 1ST BANK, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other
Common Retained Comprehensive
Stock Earnings Loss Total
---------- ---------- ------------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Balance, December 31, 1999 $ 4,085 $ 1,397 $ (364) $ 5,118
Comprehensive Income:
Net income 353 353
Net unrealized loss on
securities, net of taxes (99) (99)
----------
Total comprehensive income 254
Dividends declared at
$0.14 per share (93) (93)
Common stock issued, net of
issuance costs 2,486 2,486
--------- ---------- ---------- ----------
Balance, June 30, 2000 $ 6,571 $ 1,657 $ (463) $ 7,765
========= ========== ========== ==========
</TABLE>
See accompanying unaudited notes to the consolidated financial statements.
6
<PAGE>
TRI-STATE 1ST BANK, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
----------------------
2000 1999
--------- ---------
(In thousands)
OPERATING ACTIVITIES
Net income $ 353 $ 284
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 52 34
Depreciation, amortization, and accretion, net 121 84
Increase in accrued interest receivable (83) (26)
Decrease in accrued interest payable - (1)
Other, net 108 (9)
--------- ---------
Net cash provided by operating activities 551 366
--------- ---------
INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from maturities and repayments 2,240 3,578
Purchases (3,114) (4,680)
Investment securities held to maturity:
Proceeds from maturities and repayments 26 32
Net increase in loans (4,386) (1,196)
Purchases of premises and equipment (128) (202)
--------- ---------
Net cash used for investing activities (5,362) (2,468)
--------- ---------
FINANCING ACTIVITIES
Net increase in deposits 7,144 2,800
Increase in short term borrowings 898 842
Principal payments on other borrowings - (57)
Common Stock issued 2,486 27
Cash dividends paid (93) (68)
--------- ---------
Net cash provided by financing activities 10,435 3,544
--------- ---------
Increase in cash and cash equivalents 5,624 1,442
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,348 5,499
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,972 $ 6,941
========= =========
See accompanying unaudited notes to the consolidated financial statements.
7
<PAGE>
TRI-STATE 1ST BANK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
---------------------------
The consolidated financial statements of Tri-State 1st Bank, Inc., (the
"Company"), includes its wholly-owned subsidiaries, 1st National Community
Bank, (the "Bank") and Gateminder Corporation, ("Gateminder"). All significant
intercompany balances and transactions have been eliminated.
Nature of Operations
--------------------
Tri-State 1st Bank, Inc. is the parent company of 1st National Community Bank
and Gateminder Corporation. The Company was formed as an Ohio corporation on
April 24, 1996 and owns and controls all of the capital stock of the Bank, a
national banking association and Gateminder Corporation, an Ohio corporation.
The Company is a bank holding company engaging in bank related activities.
The Company's primary regulator is the Board of Governors of the Federal
Reserve System.
The Bank was chartered as a national banking association in September 1987,
headquartered near East Liverpool, Ohio. Business is conducted through its
six full service offices located throughout the tri-state area of Columbiana
County, Ohio, Hancock County, West Virginia and Beaver County, Pennsylvania.
The Bank operates as 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.
Gateminder Corporation was incorporated on April 14, 1999 under the laws of
the state of Ohio as a wholly owned non-bank subsidiary of the Company.
Headquartered in East Liverpool, Ohio, Gateminder was established by the
Company to provide non-bank activities for Automated Teller Machines ("ATM").
The non-bank subsidiary sells ATM machines to businesses and merchants that
operate ATMs at their place of business and provides the means for processing
the ATM transactions that are generated at the merchants ATM Machine.
Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with instructions to Form 10-QSB and, therefore, do not
necessarily include all information which would be included in audited
financial statements. The information furnished reflects all normal recurring
adjustments which are, in the opinion of management, necessary for the fair
statement of the results of the period. The results of operations for the
interim periods are not necessarily indicative of the results to be expected
for the full year.
Stock Split
-----------
On July 22, 1999, the Board of Directors declared a 5-for-4 stock split to
stockholders of record on August 4, 1999. As a result of this split, 113,290
shares of Tri-State 1st Bank stock were issued on August 25, 1999. Total
shares issued and outstanding, as well as, per share information have been
retroactively restated to reflect the stock split for all prior periods
presented.
8
<PAGE>
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Common Stock Offering
---------------------
On September 23, 1999, the Board of Directors approved the offering of the
Company's common stock to existing shareholders and the public. The offering,
which received approval by the Securities and Exchange Commission and began on
December 14, 1999 was completed on February 14, 2000. A total of 99,729
shares were issued at a price of $27 per share. Net proceeds from stock
issued amounted to $2,625,000.
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.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Weighted-average common shares used
to calculate basic earnings per share 667,247 566,534 655,276 565,858
Common stock equivalents (stock options)
used to calculate diluted earnings
per share 10,723 9,741 7,848 9,741
-------- --------- ------- ------
Weighted-average common shares and
common stock equivalents used to
calculate diluted earnings per share 677,970 576,275 663,124 575,599
======== ======== ======= =======
</TABLE>
Supplemental Disclosure of Cash Flow Information
------------------------------------------------
Six Months Ended
June 30,
----------------------
2000 1999
--------- ---------
Cash paid (received) during the period for:
Interest $965 $839
Income taxes (25) 10
9
<PAGE>
TRI-STATE 1ST BANK, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Summary of Financial Condition
------------------------------
The consolidated assets of Tri-State 1st Bank were $74,238,000 at June 30,
2000, an increase of $10,782,000 or 17.0% over total assets at December 31,
1999. The increase in total assets for the first six months of 2000 was driven
by the Company's deposit growth for the period as well as a secondary stock
offering which was completed in early 2000. Total deposits increased by
$7,143,000 or 13.3% during the period and net proceeds from the stock offering
totaled $2,486,000. Total earning assets, which principally include loans,
investment securities and federal funds sold equaled $64,604,000 at June 30,
2000 and represented an increase of $8,951,000 or 16.1% over total earning
assets at December 31, 1999.
Total liabilities at June 30, 2000 were $66,473,000, an increase of $8,135,000
or 13.9%. Contributing to this increase was the increase in deposits and
short-term borrowings.
Total stockholders' equity equaled $7,765,000 at June 30, 2000, representing
an increase of $2,647,000 or 51.7% from total equity at December 31, 1999.
On December 14, 1999 the Company commenced a stock offering to the
Shareholders of the company and the public. The offering was completed in
early 2000 resulting in an additional $2.5 million in new capital, net of
issuance costs. Also contributing to the strong increase in total equity
during the period was net income earned of $353,000, less cash dividends
declared of $93,000.
Federal Funds Sold and Investment Securities
--------------------------------------------
Federal funds sold and investment securities available for sale serve a
primary role in the overall context of balance sheet management by the
Company. The decision to purchase or sell securities is based upon the
current assessment of economic and financial conditions, including the
interest rate environment and other on and off-balance sheet positions.
Federal funds sold at June 30, 2000 totaled $4,025,000 up $3,925,000 from
year-end 1999. On an average basis, federal funds sold were $3.9 million for
the first six months of 2000. Management has generally attempted to have
available between $2 million and $4 million in federal funds sold in order to
meet the liquidity needs and loan demand of bank customers. However, this
range may shift as deposits increase or as cash liquidity needs change.
The investment securities available for sale portfolio was $21,720,000 at
June 30, 2000 compared to $21,002,000 at December 31, 1999, an increase
of $718,000 or 3.4%. Total purchases during the first six months of
2000 totaled $3.1 million, offset by regular pay-downs, calls and maturities
of $2.2 million. Market value of the portfolio during this period decreased
by $150,000 when compared to year-end 1999.
Investment securities held to maturity decreased $26,000 in the first
six months of 2000 when compared to the prior year-end. This decrease was
attributable to scheduled principal repayments as there were no additions to
the held to maturity portfolio during the period.
10
<PAGE>
Loans
-----
Loans receivable at June 30, 2000 were $36,938,000 up $4,352,000 or 13.4%
from year-end 1999. Loan originations for the first half of 2000 continued
to be very strong and exceeded originations from the same prior year period.
Demand for commercial loans and residential real-estate loans were strong
during this period as commercial loans increased $4.2 million or 59.9%
while residential real-estate loans increased $881,000 or 5.4%.
The following table illustrates the loan composition at June 30, 2000 and
December 31, 1999.
June 30, December 31,
2000 1999
-------- --------
(In thousands)
Commercial $ 11,098 $ 6,942
Real estate mortgages:
Construction 100 612
Residential 17,063 16,182
Commercial 3,644 4,031
Consumer 5,033 4,819
-------- --------
36,938 32,586
Less allowance for loan losses 416 375
-------- --------
Net loans $ 36,522 $ 32,211
======== ========
Allowance for Loan Losses
-------------------------
The Company's allowance for loan losses was $416,000 at June 30, 2000
compared to $375,000 at December 31, 1999. This represents a $41,000 or 10.9%
increase over December 31, 1999. During the period, the loan loss provision
charged to operations totaled $52,000 while net charge-offs totaled $11,000.
The following table illustrates the activity in the allowance for loan losses:
Six Months Ended
June 30,
2000 1999
--------- ---------
(In thousands)
Balance, beginning of period $ 375 $ 340
Charge-offs:
Real estate loans - -
Installment loans 35 18
Commercial loans - -
--------- ---------
Total charge-offs 35 18
--------- ---------
Recoveries:
Real estate loans - 5
Installment loans 24 4
Commercial loans - -
--------- ---------
Total recoveries 24 9
--------- ---------
Net charge-offs 11 9
--------- ---------
Provision charged to operations 52 34
--------- ---------
Balance, end of period $ 416 $ 365
========= =========
11
<PAGE>
Allowance for Loan Losses (continued)
-------------------------------------
The Company believes that the allowance for loan losses at June 30, 2000
of $416,000 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 June 30, 2000.
Non-Performing Assets
---------------------
On June 30, 2000, non-performing loans, which are comprised of commercial,
mortgage and consumer loans contractually past due 90 days or more as to
interest or principal payments but not on non-accrual status because of
collateral considerations or collection status, and non-accrual commercial
loan types which are not considered impaired, amounted to $125,000, a decrease
of $151,000 from December 31, 1999. This decrease was due to successful
collection efforts as well as paydowns on balances owed. The bank has no
impaired loans at June 30, 2000. The balance of non-accrual loans at
June 30, 2000 and December 31, 1999 represent a single commercial real-estate
loan that was placed on non-accrual status in the fourth quarter of 1999.
Proceeds approximating 75% of the loan balance have been recovered in 2000,
however foreclosure procedures have taken place and liquidation plans are now
being implemented to resolve the remaining balance outstanding. No losses are
anticipated.
The following presents the non-performing assets at June 30, 2000, and
December 31, 1999.
June 30, December 31,
2000 1999
---------- ----------
(In thousands)
Non-accrual loans $ 30 $ 127
Loans past due 90 days or more 95 149
Restructured loans - -
---------- ----------
Total non-performing loans 125 276
Other real estate owned 21 21
---------- ----------
Total non-performing assets $ 146 $ 297
========== ==========
Non-performing loans as a percentage
of total loans 0.34% 0.85%
Non-performing assets as a percentage
of total assets 0.20% 0.47%
Allowance for loan losses as a percentage
of non-performing assets 284.9% 126.3%
12
<PAGE>
Deposits
--------
Deposits continue to be 1st National Community Bank's primary source for
funding its earning assets. The Bank offers a wide variety of products
designed to attract and retain customers. Total deposits increased $7,143,000
or 13.3% when compared to total deposits at December 31, 1999. Although
increases were experienced in almost all of the Bank's deposit types, a
significant portion of the growth occurred in demand accounts, which increased
$6,415,000 or 32.1%. Savings increased $784,000 or 7.5%, time deposit
accounts were up by $387,000 or 2.1%, while money market accounts decreased
$443,000 of 9.6%. The deposit growth for the period is due to expansions
of the Bank's branch networks as well as an ongoing commitment of the Bank to
provide exceptional deposit services at a competitive rate.
Borrowings
----------
The Company from time to time uses various funding sources other than deposits
to provide the funds necessary for the loan and investment securities
portfolios. These funding sources include securities sold under repurchase
agreements and advances with the Federal Home Loan Bank of Cincinnati. At
June 30, 2000 total borrowings consisted solely of securities sold under
repurchase agreements. Advances with the Federal Home Loan Bank, which
totaled $2,000,000, were paid off upon maturing in the first quarter of 2000.
Securities sold under repurchase agreements, which are agreements with
customers of the bank and are collateralized by various bank owned
investment securities which upon maturity, are returned back to the bank
increased by $2,898,000 or 116.4%.
RESULTS OF OPERATIONS
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30,
2000 AND 1999
Summary of Earnings
-------------------
Net income for the second quarter of 2000 was $200,000 or $0.30 per share for
basic and diluted earnings per share. This compares to net income of $147,000
or $0.26 and $0.25 per basic and diluted share for the same period in 1999.
The increase in net income for the period was a result of increases in net
interest income and noninterest income offset by increases in noninterest
expense and provision for loan losses. Average shares outstanding were
667,247 at June 30, 2000 compared to 566,534 at June 30, 1999. The increase
in average shares outstanding was a result of the company issuing additional
shares in 2000.
Interest Income
---------------
Interest income on loans increased $138,000 or 19.9% for the three months
ended June 30, 2000 compared to the same prior year period. Average loans for
the period grew by $6.1 million or 20.9% along with an increase in the yield
earned on the portfolio.
Interest income on federal funds sold increased $28,000 or 51.0% during the
second quarter of 2000 when compared to the second quarter of 1999. This
increase was a result of a $413,000 or 8.6% increase in the average balance
outstanding during the 2000 period as well as an increase in the rate earned.
Interest income earned on investment securities increased during the second
quarter of 2000 by $40,000 or 13.7% from the same prior year period. This
increase was a result of an increase of $2.1 million or 7.7% in the average
balance outstanding as well as an increase in the yield earned on
the investment portfolio.
13
<PAGE>
Interest Expense
----------------
Interest expense on deposits increased only $24,000 or 5.9% during the second
quarter of 2000 when compared to the same prior year period. However,
average deposits for the quarter grew by $4.9 million or 10.0% as well as an
increase in the rate paid on these funds. Much of the deposit growth during
the period was from lower cost demand deposit type accounts.
Interest expense on short-term borrowings increased $36,000 or 156.5% during
the second quarter of 2000. This significant increase was due to an increase
of $2.1 million or 82.8% in the average balance of short-term borrowings
outstanding, as well as an increase in the rate paid on these funds.
Net Interest Income
-------------------
Net interest income is the amount that interest income generated by earning
assets, including securities and loans, exceeds interest expense associated
with interest-bearing liabilities, including deposits and borrowed funds. Net
interest income for the second quarter of 2000 totaled $759,000, an increase
of $146,000, or 23.8%, over the same prior year period. The increase in net
interest income was the result of an increase in the Bank's average earning
assets and the yields earned on these assets, offset by marginal increases in
cost of funds on interest-bearing liabilities due mostly to strong growth in
demand deposit balances.
Provision and Allowance for Loan Losses
---------------------------------------
The provision for loan losses charged to operations in the second quarter of
2000 was $30,000, an increase of $11,000 or 57.9% from the prior year period.
This increase was mainly attributable to the strong increase in the loan
portfolio outstanding during the period. Other such factors that effect the
amount of the provision are credit risks inherent in the loan portfolio,
asset quality and Management's ongoing analysis of the adequacy of the
allowance for loan losses.
Noninterest Income
------------------
Total noninterest income increased $45,000 or 36.0% in the second quarter of
2000 compared to the same prior year period. Other income increased by $12,000
or 29.3% while service fees on deposit accounts increased by $33,000 or 39.3%.
The increases were attributable to increases in the number of demand deposit
accounts serviced by the bank and to a lesser extent, an overall increase in
service related fees charged to customers.
Noninterest Expense
-------------------
Total salary and employee benefits increased $51,000 or 18.9% in the second
quarter of 2000. Salaries and wages increased primarily due to the hiring of
additional personnel, and to a lesser extent, normal merit increases relating
to existing employees. Total full-time equivalent employees increased by
13.0% from June 30, 1999 to June 30, 2000 as a result of increased staffing
level needs.
Net occupancy expense increased by $10,000 or 15.9% in the second quarter of
2000 and was attributable to the opening of a temporary branch banking office
in late 1999 as well as an overall increase in general occupancy costs.
Future expenses in this area are expected to increase as the bank has plans
on opening a new branch office in the second quarter of 2001.
Furniture and equipment expense decreased by $1,000 in the second quarter of
2000. This decrease was attributable to depreciable assets maturing in the
last twelve months and remaining in service. Future expenses in this are are
expected to increase as the bank has plans on opening a new branch office in
the second quarter of 2001.
Other expenses increased $35,000 or 19.4% during the second quarter of 2000
as compared to the same period in 1999. Increases in other expenses during
this period included: (1) a $5,000 increase in postage and telephone costs,
(2) $4,000 in fees associated with the Bank's new credit card program
implemented in the second quarter of 2000, (3) audit and examination fee
increases of $8,000, (4) an increase of $4,000 in community contributions and
(5) overall increases in general and administrative expenses.
The provision for income tax was $46,000 in the second quarter of 2000
compared to $14,000 in the same prior year period. This represents an
increase of $32,000 and is attributable to an increase in taxable income while
levels of tax-exempt interest income remained constant.
14
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30,
2000 AND 1999
Summary of Earnings
-------------------
Net income for the first half of 2000 was $353,000 compared to $284,000,
an increase of $69,000 or 24.3% from the same prior year period. The
increase in net income for the period was a result of increases in net
interest income and noninterest income offset by increases in noninterest
expense and provision for loan losses. On a per share basis, net income
for 2000 was $0.54 for basic shares and $0.53 for diluted shares, compared
to $0.50 and $0.49, respectively in 1999. Average shares outstanding were
655,276 at June 30, 2000 compared to 565,858 at June 30, 1999. The increase
in average shares outstanding was a result of the company issuing additional
shares in 2000.
Interest Income
---------------
Interest income on loans increased $260,000 or 19.1% for the six months ended
June 30, 2000 compared to the same prior year period. Average loans for the
period grew by $5.3 million or 18.4% along with an increase in the yield
earned.
Interest income on federal funds sold increased $25,000 or 25.5% during the
first half of 2000 when compared to the first half of 1999. This increase was
a result of an increase in the yield earned on these funds offset by $195,000
or 4.7% decrease in the average balance outstanding.
Interest income earned on investment securities increased during the first six
months of 2000 by $76,000 or 13.1% from the same prior year period. This
increase was a result of an increase of $2.0 million or 7.6% in the average
balance outstanding as well as an increase in the yield earned on
the investment portfolio.
Interest Expense
----------------
Interest expense on deposits increased only $61,000 or 7.7% during the first
half of 2000 when compared to the same prior year period. However, average
deposits for the period grew by $4.7 million or 9.9% as well as an increase
in the rate paid on these funds. Much of the growth in deposits during the
period were from demand type deposits and resulted in a moderate overall cost
of funds rate.
Interest expense on short-term borrowings increased $66,000 or 153.5% during
the first half of 2000. This increase was due to an increase of $1.5 or 66.6%
in the average balance of short-term borrowings outstanding, as well as an
increase in the rate paid on these funds.
Net Interest Income
-------------------
Net interest income is the amount that interest income generated by earning
assets, including securities and loans, exceeds interest expense associated
with interest-bearing liabilities, including deposits and borrowed funds. Net
interest income for the first six months of 2000 totaled $1,440,000, an
increase of $234,000, or 19.4%, over the same prior year period. The increase
in net interest income was the result of an increase in the Bank's average
earning assets and the yields earned on these assets, offset by marginal
increases in the cost of funds on interest-bearing liabilities due mostly to
strong growth in demand deposit balances.
15
<PAGE>
Provision and Allowance for Loan Losses
---------------------------------------
The provision for loan losses charged to operations in the first half of
2000 was $52,000, an increase of $18,000 or 52.9% from the prior year period.
This increase was mainly attributable to the strong increase in the loan
portfolio outstanding during the period. Other such factors that effect the
amount of the provision are credit risks inherent in the loan portfolio, loan
quality, and Management's ongoing analysis of the adequacy of the allowance
for loan losses.
Noninterest Income
------------------
Total noninterest income increased $75,000 or 29.4% in the six months ended
June 30, 2000 compared to the same prior year period. Other income increased
by $8,000 or 8.6% while service fees on deposit accounts increased by $67,000
or 41.4%. The increases were attributable to increases in the number of
deposit accounts serviced by the bank and to a lesser extent, an overall
increase in service related fees charged to customers.
Noninterest Expense
-------------------
Total salary and employee benefits increased $93,000 or 17.3% in the first
half of 2000. Salaries and wages increased primarily due to the hiring of
additional personnel throughout the past twelve months ended June 30,
2000, and to a lesser extent, normal merit increases relating to existing
employees. Total full-time equivalent employees increased by 13.0% from
June 30, 1999 to June 30, 2000 as a result of increased staffing level needs.
Net occupancy expense increased by $12,000 or 9.4% in the first half of
2000 and was attributable to the addition of a branch banking office that
opened in late 1999 as well as an overall increase in general occupancy costs.
Furniture and equipment expense remained stable increasing by $2,000.
Other expenses increased $98,000 or 27.9% during the first half of 2000
as compared to the same period in 1999. Increases in other expenses
during this period included: (1) a $17,000 increase in postage and telephone
costs, (2) $5,000 in costs associated with the Bank's new credit card program
implemented in the second quarter of 2000, (3) audit and examination fee
increases of $16,000, (4) increases in advertising costs of $4,000, (5) a
$6,000 increase in ATM/Debit Card costs and (6) an overall increase in general
and administrative costs.
The provision for income tax was $55,000 in the first half of 2000 compared
to $38,000 in the same prior year period. This represents an increase of
$17,000 and is due to an increase in taxable income while levels of tax-exempt
interest income remained constant.
Liquidity
---------
The liquidity of a banking institution reflects its ability to provide funds
to meet loan requests, to accommodate the possible outflows of deposits and to
take advantage of interest rate market opportunities. It requires continuous
analysis by management in order to match the maturates of short-term loans
and investments with the various types of deposits and borrowings. Bank
liquidity is normally considered in terms of the nature and the mix of the
Bank's sources and uses of funds.
The Bank's primary sources of funds are deposits, proceeds from principal and
interest payments on loans and mortgage-backed securities and interest
payments and maturities on investment securities. While scheduled principal
repayments on loans and mortgage-backed securities and interest payments on
investment securities are a relatively predictable source of funds, deposit
outflows and mortgage-backed prepayments are greatly influenced by general
interest rates, economic conditions, competition and other factors.
Management is not aware of any known trends, events or uncertainties that
would have a material effect on the liquidity, capital resources or operations
of the Corporation. Management is not aware of any current recommendations by
the regulatory authorities, which, if implemented, would have a material
effect on the liquidity, capital resources or operations of the Company.
16
<PAGE>
Capital Requirements
--------------------
Federal regulations require the Company to maintain minimum amounts of
capital. Specifically, the Company and the Bank are required to maintain
minimum amounts and ratios of Total and Tier 1 capital to risk-weighted
assets, and of Tier 1 capital to average total assets. Management believes,
as of June 30, 2000, that the Company and the Bank meet all capital adequacy
requirements to which they are subject.
In addition to the capital requirements, the Federal Deposit Insurance
Corporation Improvement Act ("FDICIA") established five capital categories
ranging from "well capitalized" to "critically undercapitalized." Should any
institution fail to meet the requirements to be considered "adequately
capitalized," respectively, it would become subject to a series of
increasingly restrictive regulatory actions.
As of June 30, 2000 and December 31, 1999, the FDIC categorized the Company
and the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be classified as a well capitalized financial
institution, Total risk-based, Tier 1 risk-based, and Tier 1 Leverage capital
ratios must be at least ten percent, six percent, and five percent
respectively.
The following table sets forth the Company's capital position and minimum
requirements:
June 30, 2000 December 31, 1999
-------------- -----------------
Amount Ratio Amount Ratio
------ ----- ------ -----
(Dollars in Thousands)
Total Capital
(to Risk-weighted Assets)
---------------------------
Actual $ 8,556 21.76% $ 5,761 17.10%
For Capital Adequacy Purposes 3,145 8.00 2,695 8.00
To Be Well Capitalized 3,932 10.00 3,369 10.00
Tier 1 Capital
(To Risk-weighted Assets)
--------------------------
Actual $ 8,140 20.70% $ 5,386 15.99%
For Capital Adequacy Purposes 1,573 4.00 1,348 4.00
To Be Well Capitalized 2,359 6.00 2,021 6.00
Tier 1 Capital
(to Average Assets)
--------------------
Actual $ 8,140 11.38% $ 5,386 8.46%
For Capital Adequacy Purposes 2,860 4.00 2,546 4.00
To Be Well Capitalized 3,576 5.00 3,183 5.00
17
<PAGE>
TRI-STATE 1ST BANK, INC.
FORM 10-QSB
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in securities
None
Item 3. Defaults upon senior securities
None
Item 4. Submission of matters to a vote of security holders
(a) The Company's annual meeting of shareholders was held on
April 19, 2000.
(b) The number of Class 1 Directors to be elected was
established at three (3) with the following directors
each elected for a term of three (3) years to serve
until the year 2003:
William E. Blair, Jr.
Stephen W. Cooper
Marvin H. Feldman
The following persons are current Directors of 1st Bank who
are serving as either Class 2 Directors whose terms expire
in 2001, or Class 3 Directors whose terms expire in 2002.
Class 2 Directors Expire in 2001
Keith R. Clutter
G. Allen Dickey
John P. Scotford, Sr.
Class 3 Directors Expire in 2002
Charles B. Lang
R. Lynn Leggett
John C. Thompson
Shareholders ratified the appointment of S.R. Snodgrass, A.C.
as independent certified public accountants to audit the
consolidated financial statements of the Company for the
fiscal year 2000.
The results of the votes from the annual meeting were as follows:
For Against Abstain
------- --------- ---------
William E. Blair, Jr. 480,348 3,050 15,629
Stephen W. Cooper 494,232 - 4,795
Marvin H. Feldman 494,892 - 4,135
Item 5. Other information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule, filed herewith
(99) Independent Accountant's Report
(b) Reports on Form 8-K
None
Item 11. Statement Re: Computation of per share earnings
This information is provided on page 9 under Note 1 of
Summary of Significant Accounting Policies.
18
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities and Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Tri-State 1st Bank, Inc.
(Registrant)
Date: By: /s/ Charles B. Lang
----------------------------------
August 10, 2000 Charles B. Lang
President and Chief Executive
Officer
Date: By: /s/ Kevin Anglemyer
----------------------------------
August 10, 2000 Kevin Anglemyer
Chief Financial Officer
19
