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 March 31, 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 May 5, 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
Consolidated Statement of Changes in Stockholders'
Equity 5
Consolidated Statement of Cash Flows 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-14
Part II Other Information 15
Signatures 16
<PAGE>
TRI-STATE 1ST BANK, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
March 31, December 31,
2000 1999
---------- ----------
(In thousands)
ASSETS
Cash and due from banks $ 5,149 $ 5,167
Interest-bearing deposits with other banks 63 81
Federal funds sold 4,950 100
Investment securities available for sale 20,584 21,002
Investment securities held to maturity
(market value of $1,863 and $1,891) 1,870 1,884
Loans 34,392 32,586
Less allowance for loan losses 371 375
---------- ----------
Net Loans 34,021 32,211
Premises and equipment 2,176 2,099
Accrued interest and other assets 1,070 912
---------- ----------
TOTAL ASSETS $ 69,883 $ 63,456
========== ==========
LIABILITIES
Deposits:
Noninterest - bearing demand $ 9,134 $ 7,802
Interest - bearing demand 14,473 12,163
Money market 4,348 4,637
Savings 11,121 10,490
Time 18,855 18,585
---------- ----------
Total deposits 57,931 53,677
Short-term borrowings 4,133 4,489
Accrued interest and other liabilities 240 172
---------- ----------
TOTAL LIABILITIES 62,304 58,338
---------- ----------
STOCKHOLDERS' EQUITY
Common stock, no par value; 1,000,000 shares
authorized; 665,288 and 574,940 issued
and outstanding 6,516 4,085
Retained earnings 1,550 1,397
Accumulated other comprehensive loss (487) (364)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 7,579 5,118
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 69,883 $ 63,456
========== ==========
See accompanying unaudited notes to the consolidated financial statements.
3
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TRI-STATE 1ST BANK, INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Three Months Ended
March 31,
-----------------------
2000 1999
--------- ---------
(In thousands)
INTEREST INCOME
Interest and fees on loans $ 792 $ 667
Interest-bearing deposits with other banks 1 1
Federal funds sold 40 43
Investment securities:
Taxable 195 177
Exempt from federal income tax 128 109
--------- ---------
Total interest income 1,156 997
--------- ---------
INTEREST EXPENSE
Deposits 424 387
Short-term borrowings 49 20
--------- ---------
Total interest expense 473 407
--------- ---------
NET INTEREST INCOME 683 590
Provision for loan losses 22 15
--------- ---------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 661 575
--------- ---------
NONINTEREST INCOME
Service fees on deposit accounts 111 78
Other 48 52
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Total noninterest income 159 130
--------- ---------
NONINTEREST EXPENSE
Salaries and employee benefits 311 269
Occupancy 67 64
Furniture and equipment 45 42
Other 235 170
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Total noninterest expense 658 545
--------- ---------
INCOME BEFORE INCOME TAXES 162 160
Income taxes 9 23
--------- ---------
NET INCOME $ 153 $ 137
========= =========
EARNINGS PER SHARE
Basic $ 0.24 $ 0.24
Diluted 0.24 0.24
See accompanying unaudited notes to the consolidated financial statements.
4
<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 153 153
Net unrealized loss on
securities, net of taxes (123) (123)
----------
Total comprehensive income 30
Common stock issued, net of
issuance costs 2,431 2,431
--------- ---------- ---------- ----------
Balance, March 31, 2000 $ 6,516 $ 1,550 $ (487) $ 7,579
========= ========== ========== ==========
</TABLE>
See accompanying unaudited notes to the consolidated financial statements.
5
<PAGE>
TRI-STATE 1ST BANK, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
----------------------
2000 1999
--------- ---------
(In thousands)
OPERATING ACTIVITIES
Net income $ 153 $ 137
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 22 15
Depreciation, amortization, and accretion, net 60 47
Increase in accrued interest receivable (41) (55)
Increase in accrued interest payable 59 58
Other, net (46) (122)
--------- ---------
Net cash provided by operating activities 207 80
--------- ---------
INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from maturities and repayments 1,232 1,500
Purchases (1,003) (1,729)
Investment securities held to maturity:
Proceeds from maturities and repayments 14 11
Net increase in loans (1,844) (53)
Purchases of premises and equipment (122) (144)
--------- ---------
Net cash used for investing activities (1,723) (415)
--------- ---------
FINANCING ACTIVITIES
Net increase in deposits 4,255 3,565
Increase (decrease) in short term borrowings (356) 766
Principal payments on other borrowings - (28)
Common Stock issued 2,431 -
Stock options exercised - 27
--------- ---------
Net cash provided by financing activities 6,330 4,330
--------- ---------
Increase in cash and cash equivalents 4,814 3,995
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,348 5,499
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,162 $ 9,494
========= =========
See accompanying unaudited notes to the consolidated financial statements.
6
<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 in 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.
7
<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 97,504 shares
were issued at a price of $27 per share. Net proceeds from stock issued
amounted to $2,572,000.
Recent Accounting Pronouncements
- --------------------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." The statement provides accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, by requiring the recognition of those items as
assets or liabilities in the statement of financial position, recorded at fair
value. Statement No. 133 precludes a held-to-maturity security from being
designated as a hedged item, however, at the date of initial application of
this statement, an entity is permitted to transfer any held-to-maturity
security into the available-for-sale or trading categories. The unrealized
holding gain or loss on such transferred securities shall be reported
consistent with the requirements of Statement No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Such transfers do not raise an
issue regarding an entity's intent to hold other debt securities to maturity
in the future. This statement applies prospectively for all fiscal quarters
of all years beginning after June 15, 2000.
Earnings Per Share
- ------------------
There were no convertible securities which would effect the numerator in
calculating basic and diluted earnings per share: therefore, net income as
presented on the Consolidated Statement of Income will be used as the
numerator. The following table sets forth a reconciliation of the denominator
of the basic and diluted earnings per share computation.
Three Months Ended
March 31,
2000 1999
--------- ---------
Weighted-average common shares used
to calculate basic earnings per share 643,305 565,174
Common stock equivalents (stock options)
used to calculate diluted earnings
per share 8,095 11,541
--------- ---------
Weighted-average common shares and
common stock equivalents used to
calculate diluted earnings per share 651,400 576,715
========= =========
Supplemental Disclosure of Cash Flow Information
- ------------------------------------------------
Three Months Ended
March 31,
----------------------
2000 1999
--------- ---------
Cash paid during the period for:
Interest $414 $349
Income taxes - -
8
<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 $69,883,000 at March 31,
2000, an increase of $6,427,000 or 10.1% over total assets at December 31, 1999.
The increase in total assets for the first three months of 2000 was driven by
the Company's deposit growth, which increased by $4,254,000 or 7.9% during the
same period. Total earning assets, which principally include loans, investment
securities and federal funds sold equaled $61,859,000 at March 31, 2000 and
represented an increase of $6,206,000 or 11.2% over total earning assets at
December 31, 1999.
Total liabilities at March 31, 2000 were $62,304,000, an increase of $3,966,000
or 6.8%. Contributing to this increase was the increase in deposits and other
liabilities offset by a decrease in short-term borrowings.
Total stockholders' equity equaled $7,579,000 at March 31, 2000, representing
an increase of $2,461,000 or 48.1% 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 February 2000 and
resulted in an additional $2.4 million in new capital during the quarter, net
of issuance costs. Also contributing to the strong increase in total equity
during the quarter was net income earned of $153,000. Decreasing total
equity during the same period was a $123,000 decrease in other comprehensive
income relating to a net unrealized loss on the company's investment
securities available for sale portfolio.
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 March 31, 2000 totaled $4,950,000 up $4,850,000 from
year-end 1999. On an average basis, federal funds sold were $2.6 million for
the first three 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 $20,584,000 at
March 31, 2000 compared to $21,002,000 at December 31, 1999, a decrease
of $418,000 or 2.0%. Management's overall investment strategy is to invest
funds in the investment portfolio methodically in order to employ funds not
required for loan demand in a manner which will provide safety, liquidity and
improved earnings potential. Total purchases during the first three months of
2000 totaled $1.0 million, offset by regular pay-downs, calls and maturities
of $1.2 million. Market value of the portfolio during this period decreased
by $186,000 when compared to year-end 1999.
Investment securities held to maturity decreased $14,000 in the first
three 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.
9
<PAGE>
Loans
- -----
Loans receivable at March 31, 2000 were $34,392,000 up $1,806,000 or 5.5%
from year-end 1999. Loan originations for the first three months of 2000
exceeded originations from the same prior year period. Demand for commercial
and residential real-estate loans was strong during the period as commercial
type loans increased $1.8 million or 26.5% and residential real-estate loans
increased $248 million or 1.5%. Commercial real-estate loans as well as
consumer loans decreased during the period.
The following table illustrates the loan composition at March 31, 2000 and
December 31, 1999.
March 31, December 31,
2000 1999
-------- --------
(In thousands)
Commercial and agricultural $ 8,781 $ 6,942
Real estate mortgages:
Construction 613 612
Residential 16,430 16,182
Commercial 3,822 4,031
Consumer 4,746 4,819
-------- --------
34,392 32,586
Less allowance for loan losses 371 375
-------- --------
Net loans $ 34,021 $ 32,211
======== ========
Allowance for Loan Losses
- -------------------------
The Company's allowance for loan losses was $371,000 at March 31, 2000
compared to $375,000 at December 31, 1999. This represents a $4,000 or 1.1%
decrease over December 31, 1999. During the quarter, the loan loss provision
charged to operations totaled $22,000 while net charge-offs reached $26,000.
The charge-offs for the period related mostly to various consumer-type
installment loans.
The following table illustrates the activity in the allowance for loan losses:
Three Months Ended
March 31,
2000 1999
--------- ---------
(In thousands)
Balance, beginning of period $ 375 $ 340
Charge-offs:
Real estate loans - -
Installment loans 31 15
Commercial loans - -
--------- ---------
Total charge-offs 31 15
--------- ---------
Recoveries:
Real estate loans - -
Installment loans 5 2
Commercial loans - -
--------- ---------
Total recoveries 5 2
--------- ---------
Net charge-offs 26 13
--------- ---------
Provision charged to operations 22 15
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Balance, end of period $ 371 $ 342
========= =========
10
<PAGE>
Allowance for Loan Losses (continued)
- -------------------------------------
The Company believes that the allowance for loan losses at March 31, 2000
of $371,000 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 March 31, 2000.
Non-Performing Assets
- ---------------------
On March 31, 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 $203,000, a decrease
of $73,000 or 26.4% from December 31, 1999. This decrease was mostly a result
of a decrease in non-accrual loans offset by an increase in loans past due 90
days or more. The balance of non-accrual loans at March 31, 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 since been received and
non-foreclosure liquidation actions against the borrower are persisting.
The following presents the non-performing assets at March 31, 2000, and
December 31, 1999.
March 31, December 31,
2000 1999
---------- ----------
(In thousands)
Non-accrual loans $ 30 $ 127
Loans past due 90 days or more 173 149
Restructured loans - -
---------- ----------
Total non-performing loans 203 276
Other real estate owned 21 21
---------- ----------
Total non-performing assets $ 224 $ 297
========== ==========
Non-performing loans as a percentage
of total loans 0.59% 0.85%
Non-performing assets as a percentage
of total assets 0.32% 0.47%
Allowance for loan losses as a percentage
of non-performing assets 165.6% 126.3%
11
<PAGE>
Deposits
- --------
Deposits continue to be 1st National Community Bank's primary source for
funding its earning assets. The Bank offers a wide variety of products
designed to attract and retain customers. Total deposits increased $4,254,000
or 7.9% 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
$3,642,000 or 18.2%. Savings increased $631,000 or 6.0%, time deposit
accounts were up by $270,000 or 1.5%, while money market accounts decreased
$289,000 of 6.2%. 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
March 31, 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 down during the first three months of 2000.
Securities sold under repurchase agreements, which are agreements with
"in-market" customers of the bank and are collateralized by various bank
owned investment securities which upon maturity, returned back to the bank
increased by $1,844,000 or 80.6%.
RESULTS OF OPERATIONS
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31,
2000 AND 1999
Summary of Earnings
- -------------------
Net income for the first quarter of 2000 was $153,000. This compares to net
income of $137,000 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. On a per share basis, net income for 2000 was the same as 1999 at
$0.24 for both basic and diluted shares. Average shares outstanding were
643,305 at March 31, 2000 compared to 565,174 at March 31, 1999. The
increase in average shares outstanding was a result of the company issuing
additional shares during the first quarter of 2000.
Interest Income
- ---------------
Interest income on loans increased $125,000 or 18.8% for the three months ended
March 31, 2000 compared to the same prior year period. Average loans for the
period grew by $4.6 million or 15.8% offset by an 8 basis point decrease on the
yield earned.
Interest income on federal funds sold decreased $3,000 or 7.0% during the
first quarter of 2000 when compared to the first quarter of 1999. This
decrease was a result of a $802,000 or 23.4% decrease in the average balance
outstanding during the 2000 period offset by a 114 basis point increase in the
yield earned.
Interest income earned on investment securities increased during the first
quarter of 2000 by $37,000 or 12.9% from the same prior year period. This
increase was a result of an increase of $1.8 million or 7.5% in the average
balance outstanding as well as a 19 basis point increase in the yield earned on
the investment portfolio.
12
<PAGE>
Interest Expense
- ----------------
Interest expense on deposits increased $37,000 or 9.6% during the first quarter
of 2000 when compared to the same prior year period. Average deposits for the
quarter grew by $4.6 million or 9.8% while the rate paid on these funds remained
at the same prior years rate paid.
Interest expense on short-term borrowings increased $29,000 or 145.0% during
the first quarter of 2000. This significant increase was due to an increase
of $1.0 or 25.8% in the average balance of short-term borrowings outstanding,
as well as an increase of 88 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 quarter of 2000 totaled $683,000, an increase of
$93,000, or 15.8%, 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 offset by lesser increases in the average balance and cost of funds on
interest-bearing liabilities.
Provision and Allowance for Loan Losses
- ---------------------------------------
The provision for loan losses charged to operations in the first quarter of
2000 was $22,000, an increase of $7,000 or 46.7% from the prior year period.
The amount of the provision for both periods was based on such factors as the
credit risks inherent in the loan portfolio, increase in the balance of the
loan portfolio outstanding and Management's ongoing analysis of the adequacy
of the allowance for loan losses.
Noninterest Income
- ------------------
Total noninterest income increased $29,000 or 22.3% in the first quarter of
2000 compared to the same prior year period. Other income decreased by $4,000
or 7.7% and related primarily to a decrease in insurance premium refunds
received in 1999 and 2000. Service fees on deposit accounts increased by
$33,000 or 42.3% due 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 $42,000 or 15.6% in the first
quarter of 2000. Salaries and wages increased primarily due to the hiring of
additional personnel throughout the past twelve months ended March 31,
2000, and to a lesser extent, normal merit increases relating to existing
employees. Total full-time equivalent employees increased by 18.2% from
March 31, 1999 to March 31, 2000 as a result of increased staffing level needs.
Net occupancy expense increased slightly in the first quarter of 2000.
The modest increase was attributable to increases in overall general
occupancy costs.
Furniture and equipment expense increased $3,000 or 7.1% during the first
quarter and was attributable to an increase in depreciation expenses.
Other expenses increased $65,000 or 38.4% during the first three months of 2000
as compared to the same period in 1999. Increases in other expenses during
this period included: (1) a $15,000 increase in stationery, postage and
telephone costs, (2) $3,000 start-up costs associated with the Bank's new
credit card program to be implemented in the second quarter of 2000, (3)
audit and exam fee increases of $10,000, (4) increases of loan repossession
costs of $2,500, (5) a $2,000 increase in employee training costs and (6)
$13,000 in residual organizational start-up costs.
The provision for income tax was $9,000 in the first quarter of 2000 compared
to $23,000 in the same prior year period. This represents a decrease of
$14,000 or 60.9% and is due to an increase in tax-exempt interest income offset
by a slight increase in pre-tax income.
13
<PAGE>
Liquidity
- ---------
The liquidity of a banking institution reflects its ability to provide funds
to meet loan requests, to accommodate the possible outflows of deposits and to
take advantage of interest rate market opportunities. It requires continuous
analysis by management in order to match the maturaties of short-term loans
and investments with the various types of deposits and borrowings. Bank
liquidity is normally considered in terms of the nature and the mix of the
Bank's sources and uses of funds.
The Bank's primary sources of funds are deposits, proceeds from principal and
interest payments on loans and mortgage-backed securities and interest
payments and maturities on investment securities. While scheduled principal
repayments on loans and mortgage-backed securities and interest payments on
investment securities are a relatively predictable source of funds, deposit
outflows and mortgage-backed prepayments are greatly influenced by general
interest rates, economic conditions, competition and other factors.
Management is not aware of any known trends, events or uncertainties that
would have a material effect on the liquidity, capital resources or operations
of the Corporation. Management is not aware of any current recommendations by
the regulatory authorities, which, if implemented, would have a material
effect on the liquidity, capital resources or operations of the Company.
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 March 31, 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 March 31, 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:
March 31, 2000 December 31, 1999
-------------- -----------------
Amount Ratio Amount Ratio
------ ----- ------ -----
(Dollars in Thousands)
Total Capital
(to Risk-weighted Assets)
- ---------------------------
Actual $ 8,345 22.78% $ 5,761 17.10%
For Capital Adequacy Purposes 2,930 8.00 2,695 8.00
To Be Well Capitalized 3,663 10.00 3,369 10.00
Tier 1 Capital
(To Risk-weighted Assets)
- --------------------------
Actual $ 7,974 21.77% $ 5,386 15.99%
For Capital Adequacy Purposes 1,465 4.00 1,348 4.00
To Be Well Capitalized 2,197 6.00 2,021 6.00
Tier 1 Capital
(to Average Assets)
- --------------------
Actual $ 7,974 11.96% $ 5,386 8.46%
For Capital Adequacy Purposes 2,666 4.00 2,546 4.00
To Be Well Capitalized 3,332 5.00 3,183 5.00
14
<PAGE>
TRI-STATE 1ST BANK, INC.
FORM 10-QSB
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in securities
None
Item 3. Defaults upon senior securities
None
Item 4. Submission of matters to a vote of security holders
None
Item 5. Other information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule, filed herewith
(99) Independent Accountant's Report
(b) Reports on Form 8-K
None
15
<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
----------------------------------
May 5, 2000 Charles B. Lang
President and Chief Executive
Officer
Date: By: /s/ Kevin Anglemyer
----------------------------------
May 5, 2000 Kevin Anglemyer
Chief Financial Officer
16
INDEPENDENT ACCOUNTANT'S REPORT
-------------------------------
Board of Directors and Stockholders
Tri-State 1st Bank, Inc
We have reviewed the accompanying consolidated balance sheet of Tri-State 1st
Bank and subsidiaries as of March 31, 2000, and the related consolidated
statements of income and cash flows for the three-month period ended March 31,
2000 and 1999, and the consolidated statement of changes in stockholders'
equity for the three-month period ended March 31, 2000. These consolidated
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1999, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for the year then ended (not presented herein); and in our report
dated January 7, 2000 we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth
in the accompanying consolidated balance sheet as of December 31, 1999, is
fairly stated, in all material respects.
/s/S.R. Snodgrass, A.C.
Wexford, PA
May 5, 2000
S.R. Snodgrass, A.C.
1000 Stonewood Drive
Suite 200
Wexford, PA 15090-8399
Phone: 724-934-0344
Facsimile: 724-934-0345
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<FISCAL-YEAR-END> DEC-31-1999
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