<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT UNDER 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)
(330)385-9200
-------------
(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 November 3, 2000 there were 667,313 shares outstanding of the issuer's
class of common stock.
Transitional small business disclosure format: Yes No X
----- -----
<PAGE> 2
TRI-STATE, 1ST BANK, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-QSB
Page
Reference
---------
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> 3
TRI-STATE 1ST BANK, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
September 30, December 31,
2000 1999
---------- ----------
(In thousands)
ASSETS
Cash and due from banks $ 3,923 $ 5,167
Interest-bearing deposits with other banks 65 81
Federal funds sold 400 100
Investment securities available for sale 22,338 21,002
Investment securities held to maturity
(market value of $1,784 and $1,891) 1,766 1,884
Loans 38,437 32,586
Less allowance for loan losses 423 375
---------- ----------
Net Loans 38,014 32,211
Premises and equipment 2,179 2,099
Accrued interest and other assets 957 912
---------- ----------
TOTAL ASSETS $ 69,642 $ 63,456
========== ==========
LIABILITIES
Deposits:
Noninterest - bearing demand $ 8,714 $ 7,802
Interest - bearing demand 12,998 12,163
Money market 3,995 4,637
Savings 11,058 10,490
Time 17,357 18,585
---------- ----------
Total deposits 54,122 53,677
Short-term borrowings 6,953 4,489
Accrued interest and other liabilities 426 172
---------- ----------
TOTAL LIABILITIES 61,501 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 1,789 1,397
Accumulated other comprehensive loss (219) (364)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 8,141 5,118
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 69,642 $ 63,456
========== ==========
See accompanying unaudited notes to the consolidated financial statements.
3
<PAGE> 4
TRI-STATE 1ST BANK, INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Three Months Ended
September 30,
-----------------------
2000 1999
--------- ---------
(In thousands)
INTEREST INCOME
Interest and fees on loans $ 905 $ 736
Interest-bearing deposits with other banks 1 1
Federal funds sold 37 32
Investment securities:
Taxable 214 184
Exempt from federal income tax 128 122
--------- ---------
Total interest income 1,285 1,075
--------- ---------
INTEREST EXPENSE
Deposits 421 408
Short-term borrowings 85 24
--------- ---------
Total interest expense 506 432
--------- ---------
NET INTEREST INCOME 779 643
Provision for loan losses 56 23
--------- ---------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 723 620
--------- ---------
NONINTEREST INCOME
Service fees on deposit accounts 121 105
Other 52 43
--------- ---------
Total noninterest income 173 148
--------- ---------
NONINTEREST EXPENSE
Salaries and employee benefits 350 298
Occupancy 70 68
Furniture and equipment 44 43
Other 225 180
--------- ---------
Total noninterest expense 689 589
--------- ---------
INCOME BEFORE INCOME TAXES 207 179
Income taxes 27 35
--------- ---------
NET INCOME $ 180 $ 144
========= =========
EARNINGS PER SHARE
Basic $ 0.27 $ 0.25
Diluted 0.26 0.25
See accompanying unaudited notes to the consolidated financial statements.
4
<PAGE> 5
TRI-STATE 1ST BANK, INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Nine months ended
September 30,
-----------------------
2000 1999
--------- ---------
(In thousands)
INTEREST INCOME
Interest and fees on loans $ 2,529 $ 2,099
Interest-bearing deposits with other banks 3 3
Federal funds sold 160 130
Investment securities:
Taxable 614 540
Exempt from federal income tax 385 346
--------- ---------
Total interest income 3,691 3,118
--------- ---------
INTEREST EXPENSE
Deposits 1,277 1,204
Short-term borrowings 193 67
--------- ---------
Total interest expense 1,470 1,271
--------- ---------
NET INTEREST INCOME 2,221 1,847
Provision for loan losses 108 56
--------- ---------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 2,113 1,791
--------- ---------
NONINTEREST INCOME
Service fees on deposit accounts 350 268
Other 152 136
--------- ---------
Total noninterest income 502 404
--------- ---------
NONINTEREST EXPENSE
Salaries and employee benefits 982 837
Occupancy 210 196
Furniture and equipment 133 130
Other 675 532
--------- ---------
Total noninterest expense 2,000 1,695
--------- ---------
INCOME BEFORE INCOME TAXES 615 500
Income taxes 82 72
--------- ---------
NET INCOME $ 533 $ 428
========= =========
EARNINGS PER SHARE
Basic $ 0.81 $ 0.76
Diluted 0.80 0.74
See accompanying unaudited notes to the consolidated financial statements.
5
<PAGE> 6
TRI-STATE 1ST BANK, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other
Common Retained Comprehensive
Stock Earnings Gain (Loss) Total
---------- --------- ----------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Balance, December 31, 1999 $ 4,085 $ 1,397 $ (364) $ 5,118
Comprehensive Income:
Net income 533 533
Net unrealized gain on
securities, net of taxes 145 145
----------
Total comprehensive income 678
Dividends declared at
$0.21 per share (141) (141)
Common stock issued, net of
issuance costs 2,486 2,486
--------- ---------- ---------- ----------
Balance, September 30, 2000 $ 6,571 $ 1,789 $ (219) $ 8,141
========= ========== ========== ==========
</TABLE>
See accompanying unaudited notes to the consolidated financial statements.
6
<PAGE> 7
TRI-STATE 1ST BANK, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine months ended
September 30,
----------------------
2000 1999
--------- ---------
(In thousands)
OPERATING ACTIVITIES
Net income $ 533 $ 428
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 108 56
Depreciation, amortization, and accretion, net 187 116
Increase in accrued interest receivable (149) (100)
Increase in accrued interest payable 59 57
Other, net 158 81
--------- ---------
Net cash provided by operating activities 896 638
--------- ---------
INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from maturities and repayments 2,253 3,602
Purchases (3,376) (5,479)
Investment securities held to maturity:
Proceeds from maturities and repayments 118 47
Net increase in loans (5,952) (1,811)
Purchases of premises and equipment (219) (236)
Other, net 17 --
--------- ---------
Net cash used for investing activities (7,159) (3,877)
--------- ---------
FINANCING ACTIVITIES
Net increase in deposits 446 4,071
Increase in short term borrowings 2,464 745
Principal payments on other borrowings - (67)
Common Stock issued 2,486 55
Cash dividends paid (93) (69)
--------- ---------
Net cash provided by financing activities 5,303 4,735
--------- ---------
(Decrease) increase in cash
and cash equivalents (960) 1,496
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,348 5,499
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,388 $ 6,995
========= =========
See accompanying unaudited notes to the consolidated financial statements.
7
<PAGE> 8
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.
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.
8
<PAGE> 9
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 Nine months Ended
September 30, September 30,
2000 1999 2000 1999
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Weighted-average common shares used
to calculate basic earnings per share 667,313 566,833 659,318 566,186
Common stock equivalents (stock options)
used to calculate diluted earnings
per share 11,006 9,234 10,265 9,234
-------- --------- ------- ------
Weighted-average common shares and
common stock equivalents used to
calculate diluted earnings per share 678,319 576,067 669,583 575,420
======== ======== ======= =======
</TABLE>
Supplemental Disclosure of Cash Flow Information
Nine months ended
September 30,
----------------------
2000 1999
--------- ---------
Cash paid (received) during the period for:
Interest $1,411 $1,214
Income taxes (25) 16
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Summary of Financial Condition
The consolidated assets of Tri-State 1st Bank were $69,642,000 at September 30,
2000, an increase of $6,186,000 or 9.7% over total assets at December 31, 1999.
Total loans grew by $5,851,000 or 18.0% and constituted much of the asset
growth. Total deposits during this same period increased only slightly and
resulted in short-term borrowings and proceeds received from a secondary stock
offering as the primary funding sources for the loan and asset growth. Total
deposit growth equaled $445,000 or 0.8% while short-term borrowings increased
$2,464,000 or 54.9% and net proceeds from the stock offering amounted to
$2,486,000. Total earning assets, which principally include loans, investment
securities and federal funds sold equaled $63,006,000 at September 30, 2000,
representing an increase of $7,353,000 or 13.2% over earning assets at December
31, 1999.
Total stockholders' equity equaled $8,141,000 at September 30, 2000,
representing an increase of $3,023,000 or 59.1% 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 $533,000, less cash dividends declared of
$145,000.
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. Federal
funds sold at September 30, 2000 totaled $400,000 up $300,000 from year-end
1999. On an average basis, federal funds sold were $3.3 million for the first
nine months of 2000 compared to $3.6 million for the same prior year period.
Management has generally attempted to average 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 $22,338,000 at
September 30, 2000 compared to $21,002,000 at December 31, 1999, an increase of
$1,336,000 or 6.4%. Total purchases during the first nine months of 2000 totaled
$3.4 million, offset by regular pay-downs, calls and maturities of $2.3 million.
Investment securities held to maturity decreased $118,000 or 6.3% in the first
nine 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.
Loans
Loans receivable at September 30, 2000 were $38,437,000 up $5,851,000 or 18.0%
from year-end 1999. Loan originations for the first nine months of 2000 totaled
approximately $12 million compared to originations approximating $9 million in
the same prior year period. Demand for commercial loans and residential
real-estate loans were the strongest, increasing by $5,161,000 or 74.3% and
$1,146,000 or 7.1%, respectively. Consumer loans increased $682,000 or 14.2%
while commercial real-estate and construction loans decreased $526,000 or 13.1%
and $612,000 or 100.0%, respectively. The decrease in construction loans was the
result of the maturity and completion of a construction loan that was converted
to a commercial real-estate loan. Overall loan demand experienced by the Bank
for 2000 has been very strong and attributable to such factors as: (1) increased
borrowing needs of the Bank's current customers, (2) borrowings by new customers
of the Bank, (3) expansion of the Bank's geographic lending area through a
larger, more prevailing branch network system, (4) the deployment of a Business
Development Officer whose primary role is to generate new business, (5) local
economic expansion by some of the Bank's business customers and (6) an overall
healthy local economy.
10
<PAGE> 11
Loans (continued)
The following table illustrates the loan composition at September 30, 2000 and
December 31, 1999.
September 30, December 31,
2000 1999
-------- --------
(In thousands)
Commercial $ 12,103 $ 6,942
Real estate mortgages:
Construction -- 612
Residential 17,328 16,182
Commercial 3,505 4,031
Consumer 5,501 4,819
-------- --------
38,437 32,586
Less allowance for loan losses 423 375
-------- --------
Net loans $ 38,014 $ 32,211
======== ========
Allowance for Loan Losses
The Company's allowance for loan losses was $423,000 at September 30, 2000
compared to $375,000 at December 31, 1999. This represents a $48,000 or 12.8%
increase over December 31, 1999. During the period, the loan loss provision
charged to operations totaled $108,000 while net charge-offs totaled $60,000.
This compares to a $56,000 loan loss provision and a net charge-off of $45,000
during the same prior year period.
Net charge-offs for the nine months ended September 30, 2000 were a result of: a
$14,000 charge-off in real-estate loans due to a deficiency incurred on the
final disposition of a non-accrual commercial real estate loan in the third
quarter of 2000, (2) a $13,000 charge-off in commercial loans relating to an
individual commercial loan and (3) net charge-offs of $33,000 from various
unrelated consumer loans.
The following table illustrates the activity in the allowance for loan losses:
Nine months ended
September 30,
2000 1999
--------- ---------
(In thousands)
Balance, beginning of period $ 375 $ 340
Charge-offs:
Real estate loans 14 7
Installment loans 77 50
Commercial loans 13 -
--------- ---------
Total charge-offs 104 57
--------- ---------
Recoveries:
Real estate loans - 5
Installment loans 44 7
Commercial loans - -
--------- ---------
Total recoveries 44 12
--------- ---------
Net charge-offs 60 45
--------- ---------
Provision charged to operations 108 56
--------- ---------
Balance, end of period $ 423 $ 351
========= =========
11
<PAGE> 12
Allowance for Loan Losses (continued)
The Company believes that the allowance for loan losses at September 30, 2000 of
$423,000 is adequate to cover losses inherent in the portfolio as of such date.
However, there can be no assurance that the Company will not sustain losses in
future periods, which could be substantial in relation to the size of the
allowance at September 30, 2000.
Non-Performing Assets
On September 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 amounted to $81,000, a decrease
of $195,000 from December 31, 1999.
Non-accrual loans decreased $127,000 as this amount represented a single
commercial real-estate loan placed on non-accrual status in the fourth quarter
of 1999. Final proceeds were recovered in the third quarter of 2000 after
foreclosure and subsequent liquidation actions were completed. Total proceeds
recovered amounted to $113,000 resulting in a $14,000 deficiency that was
charged-off.
Loans past due 90 days or more decreased $68,000 or 45.6% as a result of
successful collection efforts on such delinquent loans as well as a reduction in
the balances owed due to principal pay-downs received.
The bank has no impaired loans at September 30, 2000.
The following presents the non-performing assets at September 30, 2000, and
December 31, 1999.
September 30, December 31,
2000 1999
------------- ------------
(In thousands)
Non-accrual loans $ -- $ 127
Loans past due 90 days or more 81 149
Restructured loans -- --
---------- ----------
Total non-performing loans 81 276
Other real estate owned -- 21
---------- ----------
Total non-performing assets $ 81 $ 297
========== ==========
Non-performing loans as a percentage
of total loans 0.21% 0.85%
Non-performing assets as a percentage
of total assets 0.12% 0.47%
Allowance for loan losses as a percentage
of non-performing assets 522.2% 126.3%
12
<PAGE> 13
Deposits
Deposits are generally the Bank's primary source for funding its earning assets.
The Bank offers a wide variety of products designed to attract new customers and
retain existing customers while attempting to maintain a cost effective funding
source. Total deposits were up only $445,000 or 0.8% during the first nine
months of 2000 when compared to December 31, 1999. Higher costing deposits such
as money market and time accounts decreased by $642,000 or 13.8% and $1,228,000
or 6.6%, respectively. These decreases can be somewhat construed to the change
in interest rates in 2000 as the Bank has not aggressively priced some of its
higher costing deposits in an attempt to maintain a moderate increase in the
cost of funding during a rising rate environment. Noninterest- bearing demand,
interest-bearing demand and savings were all up during the first nine months of
2000. These increases were, $912,000 or 11.7%, $835,000 or 6.9% and $568,000 or
5.4%, respectively. Assisting to these increases were the addition of a new
banking office in late 1999 and a strong increase in the number of new customer
deposit accounts serviced by the Bank.
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. Funding sources may include securities sold under repurchase
agreements and advances with the Federal Home Loan Bank of Cincinnati. These
sources of fundings are often used when deposit growth is not sufficient to
support the earning assets growth.
At September 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 $2,464,000 or 54.9%.
RESULTS OF OPERATIONS
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999
Summary of Earnings
Net income for the third quarter of 2000 was $180,000 or $0.26 per diluted
earnings per share. This compares to net income of $144,000 or $0.25 per 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 667,313 at September 30, 2000 compared to 566,833 at September
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 $169,000 or 23.0% for the three months ended
September 30, 2000 compared to the same prior year period. Average loans for the
period grew by $6.8 million or 22.0%, offset by a slight decrease in the yield
earned.
Interest income on federal funds sold increased $5,000 or 15.6% during the third
quarter of 2000 when compared to the third quarter of 1999. This increase was a
result of a 179 basis point increase in the yield earned, offset by a $375,000
decrease in the average balance outstanding.
Interest income earned on investment securities increased during the third
quarter of 2000 by $36,000 or 11.8% from the same prior year period. This
increase was a result of an increase of $995,000 or 3.9% in the average balance
outstanding and an increase of 45 basis points on the yield earned on the
investment portfolio.
13
<PAGE> 14
Interest Expense
Interest expense on deposits increased only $13,000 or 3.2% during the third
quarter of 2000 when compared to the same prior year period. However, average
deposits for the quarter grew by $4.1 million or 8.5% as well as an increase in
the rate paid on these funds. Much of the deposit growth during the period was
from demand deposits resulting in a minimal change in the cost of funds rate.
Interest expense on short-term borrowings increased $61,000 or 254.2% during the
third quarter of 2000. This significant increase was due to an increase of $3.8
million or 158.8% in the average balance of short-term borrowings outstanding,
as well as a 139 basis point 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 third quarter of 2000 totaled $779,000, an increase of
$136,000, or 21.2%, 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.
Provision and Allowance for Loan Losses
The provision for loan losses charged to operations in the third quarter of 2000
was $56,000, an increase of $33,000 or 143.5% from the prior year period. This
increase was attributable to the strong increase in the loan portfolio and the
increase in the amount of charge-offs 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 $25,000 or 16.9% in the third quarter of 2000
compared to the same prior year period. Other income increased by $9,000 or
20.9% while service fees on deposit accounts increased by $16,000 or 15.2%. 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 $52,000 or 17.4% in the third
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 10.6% from
September 30, 1999 to September 30, 2000 as a result of increased staffing level
needs.
Net occupancy expense remained stable, increasing by $2,000 or 2.9% in the third
quarter of 2000.
Furniture and equipment expense increased by $1,000 or 2.3% in the third quarter
of 2000. Although this increase is modest, 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.
Other expenses increased $45,000 or 25.0% during the third quarter of 2000 as
compared to the same period in 1999. Increases in other expenses during this
period included: (1) an $8,000 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 $16,000
and (4) overall increases in general and administrative expenses.
The provision for income tax was $27,000 in the third quarter of 2000 compared
to $35,000 in the same prior year period. This represents a decrease of $8,000
and is attributable to an increase in tax-exempt interest income.
14
<PAGE> 15
RESULTS OF OPERATIONS
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2000 AND 1999
Summary of Earnings
Net income for the first nine months of 2000 was $533,000 compared to $428,000,
an increase of $105,000 or 24.5% 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 $0.81 for basic
shares and $0.80 for diluted shares, compared to $0.76 and $0.74, respectively
in 1999. Average shares outstanding were 659,318 at September 30, 2000 compared
to 566,186 at September 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 $430,000 or 20.5% for the nine months ended
September 30, 2000 compared to the same prior year period. Average loans for the
period grew by $5.8 million or 19.7% while the yield earned remained constant.
Interest income on federal funds sold increased $30,000 or 23.1% during the
first nine months of 2000 when compared to the same period in 1999. This
increase was a result of an increase in the yield earned on these funds offset
by a $255,000 or 7.1% decrease in the average balance outstanding.
Interest income earned on investment securities increased during the first nine
months of 2000 by $113,000 or 12.8% from the same prior year period. This
increase was a result of an increase of $1.6 million or 6.4% in the average
balance outstanding and an increase of 41 basis points in the yield earned on
the investment portfolio.
Interest Expense
Interest expense on deposits increased $73,000 or 6.1% during the first nine
months of 2000 when compared to the same prior year period. Average deposits for
the period grew by $4.5 million or 9.4% 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 $126,000 or 188.1% during
the first nine months of 2000. This increase was due to an increase of $2.3
million or 98.1% in the average balance of short-term borrowings outstanding and
an increase of 139 basis points in the rate paid on these funds.
Net Interest Income
Net interest income is the amount that interest income generated by earning
assets, including securities and loans, exceeds interest expense associated with
interest-bearing liabilities, including deposits and borrowed funds. Net
interest income for the first nine months of 2000 totaled $2,221,000, an
increase of $374,000, or 20.2%, 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.
15
<PAGE> 16
Provision and Allowance for Loan Losses
The provision for loan losses charged to operations in the first nine months of
2000 was $108,000, an increase of $52,000 or 92.9% from the prior year period.
This increase was mainly attributable to the strong increase in the loan
portfolio outstanding during the period as well as an increase in net
charge-offs. 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 $98,000 or 24.3% in the nine months ended
September 30, 2000 compared to the same prior year period. Other income
increased by $16,000 or 11.8% while service fees on deposit accounts increased
by $82,000 or 30.6%. 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 $145,000 or 17.3% in the first nine
months of 2000. Salaries and wages increased primarily due to the hiring of
additional personnel throughout the past twelve months ended September 30, 2000,
and to a lesser extent, normal merit increases relating to existing employees.
Total full-time equivalent employees increased by 10.6% from September 30, 1999
to September 30, 2000 as a result of increased staffing level needs.
Net occupancy expense increased by $14,000 or 7.1% in the first nine months 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 $3,000.
Other expenses increased $143,000 or 26.9% during the first nine months of 2000
as compared to the same period in 1999. Increases in other expenses during this
period included: (1) a $16,000 increase in postage and telephone costs, (2)
$8,000 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
$36,000, (4) increases in advertising costs of $4,000, (5) a $14,000 increase in
ATM/Debit Card costs and (6) an overall increase in general and administrative
costs.
The provision for income tax was $82,000 in the first nine months of 2000
compared to $72,000 in the same prior year period. This represents an increase
of $10,000 and is due to an increase in taxable income offset by an increase in
tax-exempt interest income.
Liquidity
The liquidity of a banking institution reflects its ability to provide funds to
meet loan requests, to accommodate the possible outflows of deposits and to take
advantage of interest rate market opportunities. It requires continuous analysis
by management in order to match the 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> 17
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 September 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 September 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:
September 30, 2000 December 31, 1999
------------------ -----------------
Amount Ratio Amount Ratio
------ ----- ------ -----
(Dollars in Thousands)
Total Capital
(to Risk-weighted Assets)
---------------------------
Actual $ 8,700 21.84% $ 5,761 17.10%
For Capital Adequacy Purposes 3,186 8.00 2,695 8.00
To Be Well Capitalized 3,983 10.00 3,369 10.00
Tier 1 Capital
(To Risk-weighted Assets)
--------------------------
Actual $ 8,277 20.78% $ 5,386 15.99%
For Capital Adequacy Purposes 1,593 4.00 1,348 4.00
To Be Well Capitalized 2,390 6.00 2,021 6.00
Tier 1 Capital
(to Average Assets)
--------------------
Actual $ 8,277 11.70% $ 5,386 8.46%
For Capital Adequacy Purposes 2,831 4.00 2,546 4.00
To Be Well Capitalized 3,538 5.00 3,183 5.00
17
<PAGE> 18
TRI-STATE 1ST BANK, INC.
FORM 10-QSB
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in securities
None
Item 3. Defaults upon senior securities
None
Item 4. Submission of matters to a vote of security holders
None
Item 5. Other information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule, filed herewith
(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> 19
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: November 3, 2000 By: /s/ Charles B. Lang
--------------------- ----------------------------------
Charles B. Lang
President and Chief Executive
Officer
Date: November 3, 2000 By: /s/ Kevin Anglemyer
--------------------- ----------------------------------
Kevin Anglemyer
Chief Financial Officer
19
