SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - KSB
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------------- ----------------
Commission File Number: 33-302132
TRI - STATE 1ST BANK, INC.
--------------------------
(Exact name of small business issuer as specified in its charter)
Ohio 34-1824708
- ---- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification
Number)
16924 St. Clair Avenue
P.O. Box 796
East Liverpool, Ohio 43920
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(330)385-9200
--------------
Securities registered under Section 12(b) of the Exchange Act:
None
----
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, no par value
---------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S - B contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10 - KSB or any amendment to this Form 10 - KSB. [ ]
Issuer's revenues for its most recent fiscal year $4.7 million.
The aggregate market value of the voting stock held by non - affiliates
computed by reference to the averaged bid and ask price on March 15, 2000,
was $9,579,600 (354,800 shares at $27 per share).
As of December 31, 1999, there were issued and outstanding 574,940 shares of
the registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual shareholders report for the year ended December 31,
1999 are incorporated by reference into Parts I and II, and portions of the
Proxy Statement for the annual shareholders meeting to be held on
April 19, 2000 are incorporated by reference into Part III.
Page 1
<PAGE>
Tri-State 1st Bank, Inc.
Form 10-KSB
Table of Contents
Page
Number
--------
Part I
Item 1. Business 3-9
Item 2. Properties 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Part II
Item 5. Market for Common Equity and Related Stockholder Matters 9
Item 6. Management's Discussion and Analysis 9
Item 7. Financial Statements 9
Item 8. Changes in and disagreements with Accountants on Accounting
and Financial Disclosure 10
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons 10
Item 10. Executive Compensation 10
Item 11. Security Ownership of Certain Beneficial Owners and Management 10
Item 12. Certain Relationships and Related Transactions 10
Item 13. Exhibits and Reports on Form 8-K 10
Signatures 11
Page 2
<PAGE>
PART I
Item 1. Business
General
Certain information required by this section is presented on page 35 of the
1999 Annual Report and is incorporated herein by reference.
As of December 31, 1999, the Company had 46 full-time employees and 8
part-time employees. The Company considers its relationship with its
employees to be good. None of the employees are covered by a collective
bargaining agreement.
Supervision and Regulation
The Company is subject to regulation under the Bank Holding Company Act of
1956 as amended, and as such is subject to regulation by the Federal Reserve
Board ("FRB"). Bank holding companies are required to file with the FRB
certain reports and other information regarding their business operations and
those of its subsidiaries. A bank holding company and its subsidiaries are
also subject to examination by the FRB.
On November 12, 1999 the Financial Services Modernization Act became law
substantially changing the Bank Holding Company Act of 1956. The act permits
subsidiaries of banks to engage in a broad range of financial activities that
were not previously permitted. The law authorizes a bank holding company to
affiliate with any financial company (for example, insurance or securities
companies) and to cross-sell an affiliate's products, thus allowing such a
company to offer its customers any financial product or service. In addition,
the law greatly expands the number of permissible holding company activities
to include numerous financial activities that were not previously permitted.
The law also permits operating subsidiaries of national banks to sell any
financial product without geographic limitation.
Under the Riegle - Neal Interstate Banking and Branching Efficiency Act of
1994 (the Interstate Banking Law"), various federal banking laws were amended
to provide for nationwide interstate banking, interstate bank mergers and
interstate branching. The Interstate Banking Law allowed, effective September
29, 1995, the acquisition by a bank holding company of a bank located in
another state. Interstate bank mergers and branch purchase and assumption
transactions will be allowed effective June 1, 1997; however, states may "opt
out" of the merger and purchase and assumption provisions by enacting laws
that specifically prohibit such interstate transactions. States may, in the
alternative, enact legislation to allow interstate merger and purchase and
assumption transactions prior to June 1, 1997.
Deposits maintained with the Bank are insured up to regulatory limits by the
FDIC, and accordingly, are subject to deposit insurance assessments to
maintain the Bank Insurance Fund ("BIF") administered by the FDIC. The
Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA") was enacted on August 9, 1989. FIRREA significantly affected the
financial industry in several ways, including higher deposit insurance
premiums, more stringent capital requirements and new investment limitations
and restrictions. The Federal Deposit Insurance Corporation Act of 1991 ("The
FDIC Improvement Act") covers a wide expanse of Banking regulatory issues
including the capitalization of the BIF, deposit insurance reform, requiring
the FDIC to establish a risk - based premium assessment system and a number of
other regulatory and supervisory matters.
The monetary policies of regulatory authorities, including the Federal Reserve
Board, have a significant effect on the operating results of banks and bank
holding companies. The nature of future monetary policies and the effect of
such policies on the future business and earnings of the Company cannot be
predicted.
Management is not aware of any current recommendations by regulatory
authorities which, if they were to be implemented, would have a material
effect on liquidity, capital resources or operations of the Company.
Page 3
<PAGE>
Competition and Market area
Business is conducted through six full-service banking offices located in the
Upper Ohio Valley area which constitutes the tri-state region of Columbiana
County, Ohio, Hancock County, West Virginia and Beaver County, Pennsylvania.
The Upper Ohio Valley has long been an important industrial community of the
United States. The Company is not dependent upon any single industry or
business for its banking opportunities.
The Company functions in a highly competitive environment. In addition to
other commercial banks, savings and loans, and savings banks, the Company must
also contend with other providers of financial services including finance
companies, credit unions and insurance companies. Despite having access to
less resources and smaller lending limits, the Bank remains competitive in its
service area with respect to interest rates and fees charged on loans,
interest rates paid on time and savings deposits, and service charges on
deposit accounts. The deposit base of the Bank is relatively stable whereby
seasonal fluctuations in the amount of deposits have not been experienced.
All of the Bank's deposits emanate from inside the United States.
Statistical Disclosures by Bank Holding Companies
I. Distribution of Assets, Liabilities and Shareholders' Equity; Interest
Rates and Interest Differential
Information required by this section is presented on pages 40 through 41 of
the 1999 Annual Report and is incorporated herein by reference.
II. Investment Portfolio
A. Book Value of Investment Portfolio
The required information is presented under Part II, Item 8. - Financial
Statements
B. Maturity and Yield Information
The following table sets forth the maturity of investments at December 31,
1999, and the weighted average yields of such investments. The yields
reflected are calculated based on the basis of the cost and effective yields
weighted for the scheduled maturity of each investment.
<TABLE>
<CAPTION>
1 Year 5 Years
Within 1 Through Through Over 10
Year 5 Years 10 Years Years Total
(Dollars in thousands)
--------- --------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
U. S. Treasury securities
and other U.S. Government
agencies and corporations $ 2,400 $ 8,501 $ 1,151 $ - $ 12,052
Obligations of states and
political subdivisions 258 2,991 7,386 70 10,705
Mortgage - backed securities - 109 199 96 404
Equity securities - 276 276
--------- --------- --------- -------- ----------
$ 2,658 $ 11,601 $ 8,736 $ 442 $ 23,437
========= ========= ========= ======== ==========
U. S. Treasury securities
and other U.S. Government
agencies and corporations 5.01 % 5.94 % 6.66 % - %
Obligations of states and
political subdivisions 7.29 9.10 7.50 6.52
Mortgage - backed securities - 6.49 6.23 6.78
Equity securities - 6.55
------- ------- ------- -------
5.23 % 6.76 % 7.36 % 6.67 %
======= ======= ======= =======
</TABLE>
Weighted average yields are computed on a tax equivalent basis using a
federal tax rate of 34% based on cost, adjusted for amortization of premium
or accretion of discount.
Page 4
<PAGE>
C. Aggregate Book Value of Securities Exceeding 10% of Stockholders' Equity
Excluding those holdings of the investment portfolio in U.S. Treasury
securities and other agencies and corporations of the U.S. Government, there
are no investments of any one issuer which exceeds 10% of the Company's
shareholders' equity at December 31, 1999.
III. Loan Portfolio
A. Types of Loans
The following table sets forth the composition of the loan portfolio by type
of loan at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------
1999 1998
---------------------- ----------------------
Amount Percent Amount Percent
-------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Real Estate Loans:
Construction $ 612 1.88 % $ - - %
1 - 4 Family 16,262 49.84 13,559 46.80
Commercial 4,031 12.36 6,772 23.37
Commercial Loans 6,938 21.27 4,444 15.34
Consumer Loans 4,783 14.65 4,199 14.49
-------- -------- -------- --------
Total 32,626 100.00 % 28,974 100.00 %
======== ========
Less:
Deferred loan origination fees and costs 40 35
Allowance for possible loan losses 375 340
-------- --------
Net loans $ 32,211 $ 28,599
======== ========
</TABLE>
The Bank's lending policy requires the application and satisfaction of
certain underwriting standards prior to funding any loan, among which are
documentation requirements to include credit and collateral value analysis.
Credit qualification entails evaluation of business cash flows or consumer
income available to service debt payments. Secondary sources of repayment,
including collateral and guarantees may be requested as well. Lending
opportunities typically are restricted to the market areas the Bank's
branches serve.
The Bank's lending strategy has historically focused on the origination and
retention of a mixture in its portfolio of commercial loans, one - to - four
family mortgage loans and, to a lesser extent, working capital loans in the
form of credit lines and term notes, personal loans, and home equity loans.
Commercial real estate loans are granted for the acquisition or improvement
of real property. Generally, commercial real estate loans do not exceed 70%
of the appraised value of the property pledged to secure the transaction.
With repayment typically contingent upon successful operation of the subject
real estate, this is carefully scrutinized prior to approval.
Real estate construction loans are granted for the purpose of construction
improvements to real property, both commercial and residential. Real estate
loans secured by one - to - four family residential housing properties are
granted subject to statutory limits regarding the maximum percentage of
appraised value of the mortgaged property. Residential loan terms are
normally established based upon factors such as interest rates in general,
the supply of money available to the Bank and the demand for such loans.
Consumer loans represent the extension of financing to customers for personal
expenditures or household purposes. Creditworthiness is evaluated on the basis
of projected repayment capacity as well as credit history. Such loans are
granted in the form of installment or revolving transactions.
Page 5
<PAGE>
B. Maturities and Sensitivities of Loans to Changes in Interest Rates
The following table exhibits the maturity of commercial and real estate
construction loans outstanding as of December 31, 1999, and the amounts due
after one year classified according to the sensitivity to changes in
interest rates.
<TABLE>
<CAPTION>
Maturing
---------------------------------
One Year
Within Through After
1 Year Five Years Five Years Total
-------- -------- -------- --------
<S> <C> <C> <C> <C>
(Dollars in Thousands)
Commercial and agricultural $ 1,572 $ 2,501 $ 2,865 $ 6,938
Real estate - construction 612 - - 612
-------- -------- -------- --------
Total $ 2,184 $ 2,501 $ 2,865 $ 7,550
======== ======== ======== ========
Sensitivity of loans to interest rates:
Predetermined interest rates $ 1,725 $ 698
Floating interest rates 776 2,167
-------- --------
Total $ 2,501 $ 2,865
======== ========
</TABLE>
C. Risk Elements
Certain information required by this section is presented on pages 9, 22 and
35 through 41 of the 1999 Annual Report and is incorporated herein by reference.
The following table sets forth information regarding non - performing assets:
At December 31,
-------------------
1999 1998
-------- --------
(Dollars in Thousands)
Loans past due 90 days or more and still accruing interest $ 149 $ 179
Nonaccrual loans 127 -
Impaired loans - -
-------- --------
Total non - performing loans 276 179
Other real estate owned 21 -
-------- --------
Total non - performing assets $ 297 $ 179
======== ========
Non-performing loans as a percentage of total loans 0.85 % 0.62 %
Non-performing assets as a percentage of total assets 0.47 % 0.31 %
Allowance for loan losses as a percentage on non-performing
assets 126.3 % 189.9 %
Non - performing assets include non - performing loans and other real estate
owned. The Bank's non-performing assets, do not represent or result from
trends or uncertainties which management reasonably expects will materially
impact future operating results, liquidity or capital resources. Impaired
loans are commercial and commercial real estate loans for which it is
probable that the Bank will not be able to collect all amounts due according
to the contractual terms of the loan agreement.
Although the Bank has a diversified loan portfolio, a substantial portion of
its debtors' ability to honor their agreements is dependent upon the economic
stability of the tri - state area. At December 31, 1999, the Corporation
did not have any concentrations of loans to borrowers engaged in similar
activities exceeding 10% of total loans.
While it is impossible to predict what 2000 loan losses will be, there are no
potential problem loans outstanding at the end of any period presented for
which there was serious doubt as to the ability of the borrower to comply
with present loan repayment terms except as discussed above.
Page 6
<PAGE>
IV. Summary of Loan Loss Experience
A. Analysis of Loan Loss Experience
The following table sets forth information with respect to the Bank's
allowance for loan losses at the dates indicated:
At December 31,
-------------------
1999 1998
-------- --------
(Dollars in Thousands)
Balance, January 1 $ 340 $ 309
Charge - offs:
Commercial and agricultural - -
Real estate mortgages 7 5
Consumer 51 33
-------- --------
Total charge - offs 58 38
-------- --------
Loan recoveries:
Commercial and agricultural - -
Real estate mortgages 9 -
Consumer 5 15
-------- --------
Total loan recoveries 14 15
-------- --------
Net charge - offs 44 23
-------- --------
Provision charged to operations 79 54
-------- --------
Balance, December 31 $ 375 $ 340
======== ========
Net charge - offs as a percent of average loans 0.15 % 0.08 %
The Bank believes that the allowance for loan losses at December 31, 1999 is
adequate to cover losses inherent in the portfolio. However, there can be no
assurance that the Bank will not sustain additional losses in future periods,
which could be substantial in relation to the size of the allowance at
December 31, 1999.
B. Allocation of the Allowance for Possible Loan Losses
The following table provides a breakdown of the allowance for loan losses for
the periods indicated:
At December 31,
-------------------------------------------
1999 1998
-------------------- --------------------
% of Loans % of Loans
to Total to Total
Amount Loans Amount Loans
------ -------- ------ --------
(Dollars in Thousands)
Real Estate Loans:
Construction $ 6 1.88 % $ - - %
1 - 4 Family 70 49.84 85 46.80
Commercial 50 12.36 44 23.37
Commercial Loans 42 21.27 36 15.34
Consumer Loans 113 14.65 90 14.49
-------- --------
Unallocated 94 85
------ ------
Total $ 375 100.00 % $ 340 100.00 %
====== ======== ====== ========
The allocation of the allowance for possible loan losses is predicated upon
periodic review and evaluation of individual loans, past loss experience,
risk elements associated with particular loan categories, and the impact of
the economic environment. The allowance for loan losses is available to
absorb credit losses arising from individual or portfolio segments. When
losses on specific loans are identified, the portion deemed uncollectable is
charged off.
Page 7
<PAGE>
The Bank monitors its loan portfolio on a monthly basis, taking into
consideration the status of potential problem loans and non - performing
assets, as well as trends in delinquencies. Management's determination of
the adequacy of the allowance for loan losses is based on periodic
evaluations of the credit portfolio and other relevant factors. In addition
to the estimate of the amounts and timing of expected future cash flows on
impaired loans, other components of the allowance for loan losses include
estimates for loan losses associated within the commercial, consumer and
real estate mortgage portfolios, general amounts for historical loss
experience, uncertainties in estimating losses, and inherent risks in the
various credit portfolios.
V. Deposits
A. Average Deposits and Rates Paid by Type
The following tables summarize the daily average amount of deposits and rates
paid on such deposits for the periods indicated.
Year Ended December 31,
---------------------------
1999 1998
Amount
- ---------------------------- ---------- ----------
(Dollars in thousands)
Noninterest - bearing demand $ 7,848 $ 7,155
Interest - bearing demand 12,368 10,418
Savings 10,811 9,810
Money market 4,796 4,918
Time 18,063 15,766
---------- ----------
Total $ 53,886 $ 48,067
========== ==========
Rate
- ----------------------------
Noninterest - bearing demand - % - %
Interest - bearing demand 2.25 2.25
Savings deposits 2.50 2.50
Money market 2.75 2.75
Time deposits 5.02 5.29
The following table sets forth the remaining maturity of time certificates of
deposit in denominations of $100,000 or more.
December 31,
1999
--------------
(In thousands)
3 months or less $ 3,822
Over 3 months through 6 months 705
Over 6 months through 12 months 926
Over 12 months 424
-------
Total $5,877
=======
VI. Return on Equity
The required information is incorporated by reference to page 9 of the 1999
Annual Report.
VII. Short - Term Borrowings
The required information is presented under Part II, Item 8. - Financial
Statements.
Page 8
<PAGE>
Item 2. Properties
The following are the principal locations of operations of the Company and
Bank:
Own or Term of
Description Rent Lease
- ----------- ---------- -----------
Executive offices of the
Company and Bank and
main branch
16924 St. Clair Avenue
East Liverpool, OH 43920 Own N/A
Branch office
Jefferson & Lincoln Way
Lisbon, OH 44432 Own N/A
Branch office Lease
15703 St Rt 170 expiration:
Calcutta, OH 43920 Rent 12/1/01
Branch office Lease
Walmart Store expiration:
Calcutta, OH 43920 Rent 5/17/02
Branch office
1200 North Chestnut Street
New Cumberland, WV 26047 Own N/A
Branch office
627 Midland Avenue Own N/A
Midland, PA 15059
Management asserts that for insurance purposes all facilities and equipment
are subject to periodic appraisal and all properties are adequately insured.
Item 3. Legal Proceedings
There are no pending legal proceedings, other than ordinary routine litigation
incidental to banking, to which the Company or the Bank is a party or of which
any of the Company's or Bank's property is subject.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the fourth
quarter of 1999.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The required information is incorporated by reference to page 10 of the 1999
Annual Report.
Item 6. Management's Discussion and Analysis
The required information is incorporated by reference to pages 35 through 41
of the 1999 Annual Report.
Item 7. Financial Statements.
The required information is incorporated by reference to pages 11 through 34
of the 1999 Annual Report.
Page 9
<PAGE>
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons,
Compliance With Section 16(a) of the Exchange Act.
The required information is incorporated by reference to pages 4 through 7
of the proxy statement.
Item 10. Executive Compensation
The required information is incorporated by reference to pages 7 and 8 of
the proxy statement.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The required information is incorporated by reference to pages 9 through 12
of the proxy statement.
Item 12. Certain Relationships and Related Transactions.
The required information is incorporated by reference to pages 12 and 13 of
the proxy statement.
Item 13. Exhibits and Reports on Form 8 - K.
The following documents are filed as part of this report, except as may be
indicated:
(1) Financial Statements:
The following Consolidated Financial Statements of Tri - State 1st Bank, Inc.
together with the Report of Independent Auditors dated January 7, 2000, are
included in the 1999 Annual Report of the registrant which is referenced in
Part II, Item 7 - Financial Statements and are incorporated herein:
Page Reference
--------------
Report of Independent Auditors 11
Consolidated Balance Sheet, December 31, 1999 and 1998 12
Consolidated Statement of Income for the years ended
December 31, 1999 and 1998 13
Consolidated Statement of Stockholders' Equity for the
years ended December 31, 1999 and 1998 14
Consolidated Statement of Cash Flows for the years ended
December 31, 1999 and 1998 15
Notes to Consolidated Financial Statements 16-34
(2) Exhibits:
Exhibits filed herewith or incorporated by reference are set forth in the
following table prepared in accordance with item 601 of Regulation S - B.
(3.1) Articles of Incorporation of the registrant are incorporated
herein by reference to the registrant's Registration Statement on
Form S - 4 filed with the Securities and Exchange Commission on
March 8, 1996.
(3.2) By - laws of the registrant are incorporated by reference to the
registrant's Registration Statement on Form S - 4 filed with the
Securities and Exchange Commission on March 8, 1996.
(10.1) Stock Option Plan filed with the Securities and Exchange Commission
on November 30, 1999.
(13) Annual Report to Security Holders for the year ended
December 31, 1999, filed herewith as exhibit 13.
(21) Subsidiary of the registrant incorporated herein by reference to
the registrant's Registration Statement on Form S - 4 filed with the
Securities and Exchange Commission on March 8, 1996.
(27) Financial Data Schedule for the year ended December 31, 1999,
filed herewith as exhibit 27.
Page 10
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Tri - State 1st Bank, Inc.
Date: March 15, 2000
/s/ Charles B. Lang
---------------------------------------
Charles B. Lang
President
(Principal Executive Officer)
Date: March 15, 2000
/s/ Kevin Anglemyer
---------------------------------------
Kevin Anglemyer
Chief Financial Officer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the persons on behalf of the registrant and in
the capacities and on the dates indicated.
Name Title Date
- ------------------------- --------- --------------
/s/ Charles B. Lang President March 15, 2000
- -------------------------
Charles B. Lang
/s/ Keith R. Clutter Secretary March 15, 2000
- -------------------------
Keith R. Clutter
/s/ William E. Blair Director March 15, 2000
- -------------------------
William E. Blair
/s/ Stephen W. Cooper Director March 15, 2000
- -------------------------
Stephen W. Cooper
/s/ G. Allen Dickey Director March 15, 2000
- -------------------------
G. Allen Dickey
/s/ Marvin H. Feldman Director March 15, 2000
- -------------------------
Marvin H. Feldman
/s/ R. Lynn Leggett Director March 15, 2000
- -------------------------
R. Lynn Leggett
/s/ John P. Scotford, Sr. Director March 15, 2000
- -------------------------
John P. Scotford, Sr.
/s/ John C. Thompson Director March 15, 2000
- -------------------------
John C. Thompson
Financial Highlights of 1999
(Dollars in Thousands, Except Per Share Information)
<TABLE>
<CAPTION>
1999 1998 Change
------- ------- ---------------------
Balance Sheet Highlights
- ------------------------
at December 31,
- ---------------
<S> <C> <C> <C> <C>
Total assets $63,456 $58,303 $5,153 8.8%
Investment securities 22,886 21,657 1,229 5.7
Loans 32,586 28,939 3,647 12.6
Allowance for loan losses 375 340 35 10.3
Total earning assets 55,653 51,777 3,876 7.5
Deposits 53,676 51,349 2,327 4.5
Stockholders' equity 5,119 5,078 41 .8
For the Year
- ------------
Net income $ 550 $ 548 $ 2 0.4%
Net interest income 2,485 2,287 198 8.7
Cash dividends paid 142 130 12 9.2
Stockholders' Value (per share) (1)
- -----------------------------------
Basic earnings per share $ 0.97 $ 0.97 -- --
Diluted earnings per share 0.96 0.96 -- --
Cash dividends paid 0.25 0.23 $ 0.02 8.7%
Book value 8.90 8.99 (0.09) (1.0)
Market value 27.00 26.40 0.60 2.3
Safety and Soundness
- --------------------
Stockholders' equity to
total assets 8.07% 8.71% -- (7.3)%
Dividends as a percent of
net income 25.91 23.67 -- 9.5
Allowance for loan losses
to total loans 1.15 1.18 -- (2.5)
Total capital to risk-weighted
assets 17.10 16.64 -- 2.8
</TABLE>
(1) Adjusted for a five-for-four stock split effective August 25, 1999 and a
10% stock dividend effective June 26, 1998.
<PAGE>
SELECTED FINANCIAL DATA
- -----------------------
The following tables set forth certain information concerning the
consolidated position and certain performance ratios of the Company and its
subsidiaries at the dates indicated:
<TABLE>
<CAPTION>
At or for the Year Ended December 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(Dollars in Thousands, Except Per Share Information)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data
Assets $ 63,456 $ 58,303 $ 48,326 $ 43,175 $ 38,636
Investment securities 22,886 21,657 14,985 12,187 10,477
Loans 32,586 28,939 26,012 24,052 22,117
Allowance for loan losses 375 340 309 290 266
Deposits 53,676 51,349 42,904 38,690 34,358
Borrowings 4,489 1,567 177 279 375
Stockholders' equity 5,119 5,078 4,515 4,036 3,686
Summary of Operations
Interest income $ 4,199 $ 3,933 $ 3,396 $ 3,039 $ 2,704
Interest expense 1,714 1,646 1,332 1,223 1,043
-------- -------- -------- -------- --------
Net interest income 2,485 2,287 2,064 1,816 1,661
Provision for loan losses 79 54 54 49 68
-------- -------- -------- -------- --------
Net interest income after
provision for loan losses 2,406 2,233 2,010 1,767 1,593
Other operating income 549 487 351 349 309
Other operating expense 2,329 2,057 1,685 1,485 1,355
-------- -------- -------- -------- --------
Income before income taxes 626 663 676 631 547
Income taxes 76 115 151 161 145
-------- -------- -------- -------- --------
Net income $ 550 $ 548 $ 525 $ 470 $ 402
======== ======== ======== ======== ========
Per Share Data (1)
Basic earnings $ 0.97 $ 0.97 $ 0.93 $ 0.83 $ 0.71
Diluted earnings 0.96 0.96 0.93 0.83 0.71
Cash dividends declared 0.25 0.23 0.21 0.18 0.18
Book value 8.90 8.97 7.98 7.13 6.51
Basic Average shares outstanding 566,726 564,836 564,836 564,836 564,836
Diluted Average shares outstanding 574,962 573,035 564,836 564,836 564,836
Market Information (1)
High $ 27.00 $ 26.40 $ 15.84 $ 12.24 $ 11.43
Low 23.25 20.80 11.52 10.80 7.47
At December 31 27.00 26.40 15.84 12.24 11.43
Selected Financial Ratios
Return on average assets 0.89 % 0.99 % 1.15 % 1.14 % 1.12 %
Return on average equity 10.87 11.38 12.31 12.21 11.54
Average equity to average assets 8.19 8.73 9.35 9.33 9.63
Equity to assets at end of period 8.07 8.71 9.34 9.35 9.54
Non-performing assets to total assets 0.47 0.30 0.21 0.80 1.11
Non-performing loans to total loans 0.85 0.59 0.39 1.44 1.44
</TABLE>
(1) Adjusted for a five-for-four stock split effective August 25, 1999, a 10%
stock dividend effective June 26, 1998 and 2- for -1 stock splits effective
July 9, 1997 and February 22, 1995.
<PAGE>
COMMON STOCK MARKET PRICE AND DIVIDEND INFORMATION
- --------------------------------------------------
Tri-State 1st Bank, Inc.'s common stock is traded on the NASDAQ OTC Bulletin
Board under the trade symbol TSEO. The following table presents the quarterly
high and low prices as reported by Advest, Inc., a market maker in the
Company's common stock and previously the Bank's common stock, for the recent
two-year period ended December 31, 1999. Also included in the table are
dividends declared per share on the outstanding common stock.
Cash
Common Stock Price Dividends
- ------------------------------------------------- Declared
1999 High Low Per Share
- -------------- --------- --------- ----------
First Quarter $ 24.75 $ 23.25 $ --
Second Quarter 24.75 23.25 0.12
Third Quarter 27.00 24.75 --
Fourth Quarter 27.00 26.40 0.13
-------
$ 0.25
=======
1998
- --------------
First Quarter $ 18.72 $ 12.24 $ --
Second Quarter 23.00 23.00 0.11
Third Quarter 25.40 25.40 --
Fourth Quarter 26.40 26.40 0.12
-------
$ 0.23
=======
At December 31, 1999, there were 574,940 of common shares issued and
outstanding, which were held by approximately 379 shareholders of record.
The Company's ability to pay dividends to shareholders is dependent upon the
receipt of dividends from the Bank, because the Company currently has no
source of income other than the Bank. The Bank may not declare or pay
dividends on its common stock if such payment will cause its regulatory
capital to be reduced below minimum requirements imposed by OCC regulations.
The Company is also subject to certain regulatory restrictions imposed by the
Federal Reserve Board on the payment of dividends to its shareholders.
All stock prices and dividends have been restated to reflect a five-for-four
stock split effective August 25, 1999 and a 10% stock dividend effective June
26, 1998.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
------------------------------
Board of Directors and Stockholders
Tri-State 1st Bank, Inc.
We have audited the consolidated balance sheet of Tri-State 1st Bank, Inc. and
Subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Tri-State
1st Bank, Inc. and Subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ S.R. Snodgrass, A.C.
Wexford, PA
January 7, 2000
S.R. Snodgrass, A.C.
1000 Stonewood Drive
Suite 200
Wexford, PA 15090-8399
Phone: 724-934-0344
Facsimile: 724-934-0345
<PAGE>
TRI-STATE 1ST BANK, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
1999 1998
------------ -------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 5,166,857 $ 4,319,381
Interest-bearing deposits with other banks 80,941 80,356
Federal funds sold 100,000 1,100,000
Investment securities available for sale 21,002,377 19,957,516
Investment securities held to maturity (market value
of $1,890,529 and $1,765,465) 1,883,630 1,699,589
Loans 32,586,186 28,939,322
------------ -------------
Less allowance for loan losses 375,280 340,197
Net loans 32,210,906 28,599,125
Premises and equipment 2,099,133 1,850,095
Accrued interest and other assets 911,815 697,365
------------ -------------
TOTAL ASSETS $ 63,455,659 $ 58,303,427
============ =============
LIABILITIES
Deposits:
Noninterest-bearing demand $ 7,801,649 $ 8,362,305
Interest-bearing demand 12,163,522 12,087,939
Money market 4,636,600 4,598,841
Savings 10,489,604 10,297,040
Time 18,584,638 16,003,144
------------ -------------
Total deposits 53,676,013 51,349,269
Short-term borrowings 4,489,199 1,500,000
Other borrowings - 67,311
Accrued interest and other liabilities 171,837 309,134
------------ -------------
TOTAL LIABILITIES 58,337,049 53,225,714
------------ -------------
STOCKHOLDERS' EQUITY
Common stock, no par value; 1,000,000 shares authorized,
574,940 and 564,836 shares issued and outstanding 4,085,248 3,890,423
Retained earnings 1,397,077 989,510
Accumulated other comprehensive income (loss) (363,715) 197,780
------------ -------------
TOTAL STOCKHOLDERS' EQUITY 5,118,610 5,077,713
------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 63,455,659 $ 58,303,427
============ =============
</TABLE>
See accompanying notes to the consolidated financial statements.
2
<PAGE>
TRI-STATE 1ST BANK, INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998
------------ ------------
<S> <C> <C>
INTEREST INCOME
Loans, including fees $ 2,835,038 $ 2,655,293
Interest-bearing deposits with other banks 3,728 3,547
Federal funds sold 163,228 231,715
Investment securities:
Taxable 726,004 693,116
Exempt from federal income tax 470,391 349,628
------------ ------------
Total interest income 4,198,389 3,933,299
------------ ------------
INTEREST EXPENSE
Deposits 1,607,174 1,581,659
Short-term borrowings 105,232 56,508
Other borrowings 1,169 7,944
------------ ------------
Total interest expense 1,713,575 1,646,111
------------ ------------
NET INTEREST INCOME 2,484,814 2,287,188
Provision for loan losses 79,200 54,272
------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,405,614 2,232,916
------------ ------------
OTHER OPERATING INCOME
Service fees on deposit accounts 376,655 302,233
Investment securities gains (losses) (923) 6,141
Other 173,496 178,993
------------ ------------
Total other operating income 549,228 487,367
------------ ------------
OTHER OPERATING EXPENSE
Salaries and employee benefits 1,155,710 971,380
Occupancy 264,063 209,020
Furniture and equipment 172,311 167,641
Other 737,087 709,260
------------ ------------
Total other operating expense 2,329,171 2,057,301
------------ ------------
Income before income taxes 625,671 662,982
Income taxes 75,608 115,071
------------ ------------
NET INCOME $ 550,063 $ 547,911
============ ============
EARNINGS PER SHARE
Basic $ 0.97 $ 0.97
Diluted 0.96 0.96
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE>
TRI-STATE 1ST BANK, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Other
Common Retained Comprehensive
Stock Earnings Income (Loss) Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1997 $ 2,894,500 $ 1,567,189 $ 53,090 $ 4,514,779
Comprehensive income (loss):
Net income 547,911 547,911
Net unrealized gain on securities,
net of tax of $74,537 144,690 144,690
------------
Total comprehensive income 692,601
Dividends declared ($.23 per share) (129,667) (129,667)
Ten percent stock dividend 995,923 (995,923)
------------ ------------ ------------ ------------
Balance, December 31, 1998 3,890,423 989,510 197,780 5,077,713
Comprehensive income (loss):
Net income 550,063 550,063
Net unrealized loss on securities,
net of tax benefit of $289,255 (561,495) (561,495)
------------
Total comprehensive loss (11,432)
Dividends declared ($.25 per share)
including cash paid in lieu of
fractional shares (142,496) (142,496)
Common stock issued, net of
issuance costs 140,577 140,577
Stock options exercised 54,248 54,248
------------ ------------ ------------ ------------
Balance, December 31, 1999 $ 4,085,248 $ 1,397,077 $ (363,715) $ 5,118,610
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
1999 1998
---------------- ---------------
<S> <C> <C>
Components of other comprehensive income (loss):
Change in net unrealized (loss) gain on
investment securities held for sale $ (562,104) $ 148,743
Realized losses (gains) included in net
income, net of tax 609 (4,053)
---------------- ---------------
Total $ (561,495) $ 144,690
================ ===============
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
TRI-STATE 1ST BANK, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998
-------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 550,063 $ 547,911
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 79,200 54,272
Depreciation and amortization, net 187,894 101,725
Investment securities losses (gains) 923 (6,141)
Deferred income taxes 23,104 21,134
Increase in accrued interest receivable (58,948) (146,110)
Increase (decrease) in accrued interest payable 2,716 (1,579)
Other (34,580) (35,311)
-------------- ---------------
Net cash provided by operating activities 750,372 535,901
-------------- ---------------
INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from sales 315,572 600,179
Proceeds from principal repayments and maturities 4,088,521 4,990,211
Purchases of securities (6,305,724) (12,228,271)
Investment securities held to maturity:
Proceeds from principal repayments and maturities 215,959 197,633
Purchase of securities (400,000) -
Net increase in loans (3,695,133) (2,908,056)
Purchase of premises and equipment (422,467) (577,746)
-------------- ---------------
Net cash used for investing activities (6,203,272) (9,926,050)
-------------- ---------------
FINANCING ACTIVITIES
Net increase in deposits 2,326,744 8,445,722
Net increase in short-term borrowings 2,989,199 1,000,000
Principal payments on other borrowings (67,311) (109,472)
Common stock issued 194,825 -
Cash dividends paid, including cash paid in lieu of
fractional shares (142,496) (129,667)
-------------- ---------------
Net cash provided by financing activities 5,300,961 9,206,583
-------------- ---------------
Decrease in cash and cash equivalents (151,939) (183,566)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 5,499,737 5,683,303
-------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 5,347,798 $ 5,499,737
============== ===============
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE>
TRI-STATE 1ST BANK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND BASIS OF PRESENTATION
- ----------------------------------------------
A summary of significant accounting and reporting policies applied in the
presentation of the accompanying financial statements follows:
Tri-State 1st Bank, Inc. (the "Company") is an Ohio corporation organized as
the holding company of the 1st National Community Bank (the "Bank"), and
Gateminder Corporation ("Gateminder"). The Bank is a national banking
association headquartered in East Liverpool, Ohio. The Bank's principal
sources of revenue emanate from its commercial, commercial mortgage,
residential real estate, consumer loan financing, and its investment
securities portfolio as well as a variety of deposit services offered to its
customers through six offices which are located in the tri-state area. On
April 14, 1999, Gateminder Corporation was incorporated under the laws of the
state of Ohio as a wholly-owned non-bank subsidiary of the Company.
Headquartered in East Liverpool, Ohio, Gateminder was established by the
Company to provide non-banking services to businesses with automated teller
machines ("ATM"). Gateminder sells ATM machines and provides the means for
processing the transactions for businesses. Gateminder commenced operations
on June 25, 1999.
The Company's principal assets are represented by its ownership of the Bank
and Gateminder. The Company and Gateminder are supervised by the Board of
Governors of the Federal Reserve System, while the Bank is subject to
regulation and supervision by the Office of the Comptroller of the Currency.
The consolidated financial statements of the Company include its wholly-owned
subsidiaries. All intercompany transactions have been eliminated in
consolidation. The investment in subsidiary on the parent company financial
statements is carried at the Company's equity position in the underlying net
assets of each entity. The financial statements have been prepared in
conformity with generally accepted accounting principles. In preparing the
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the balance
sheet date and revenues and expenses for the period. Actual results could
differ significantly from those estimates.
INVESTMENT SECURITIES
- ---------------------
Investment securities are classified at the time of purchase, based on
management's abilities and intention, as securities held to maturity or
available for sale. Debt securities acquired with the ability and intent to
hold to maturity are stated at cost adjusted for amortization of premium and
accretion of discount, which are computed using the interest method, and
recognized as adjustments of interest income. Other debt securities have been
classified as available for sale to serve principally for liquidity purposes.
Unrealized holding gains and losses for available for sale securities are
reported as a separate component of stockholders' equity, net of tax, until
realized. Realized securities gains and losses are computed using the
specific identification method. Interest and dividends on investment
securities are recognized as income when earned.
Common stock of the Federal Home Loan Bank and the Federal Reserve Bank
represents ownership in institutions that are wholly owned by other financial
institutions. These equity securities are accounted for at cost and are
classified as equity securities available for sale.
6
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
LOANS
- -----
Loans are reported at their principal amount, net of the allowance for loan
losses. Interest on all loans is recognized as income when earned on the
accrual method. The Company's general policy is to stop accruing interest on
loans when it is determined that reasonable doubt exists as to the
collectibility of additional interest. Interest received on nonaccrual loans
is recorded as income or applied against principal according to management's
judgment as to the collectibility of principal.
Loan origination fees and certain direct loan origination costs are being
deferred and the net amount amortized as an adjustment of the related loan's
yield. The Company is amortizing these amounts over the contractual life of
the related loans.
ALLOWANCE FOR LOAN LOSSES
- -------------------------
The allowance for loan losses represents the amount which management estimates
is adequate to provide for potential losses in its loan portfolio. The
allowance method is used in providing for loan losses. Accordingly, all loan
losses are charged to the allowance, and all recoveries are credited to it.
The allowance for loan losses is established through a provision for loan
losses charged to operations. The provision for loan losses is based on
management's periodic evaluation of individual loans, economic factors, past
loan loss experience, changes in the composition and volume of the portfolio,
and other relevant factors. The estimates used in determining the adequacy of
the allowance for loan losses, including the amounts and timing of future cash
flows expected on impaired loans, are particularly susceptible to changes in
the near term.
Impaired loans are commercial and commercial real estate loans for which it is
probable the Company will not be able to collect all amounts due according to
the contractual terms of the loan agreement. The Company individually
evaluates such loans for impairment and does not aggregate such loans by major
risk classifications. The definition of "impaired loans" is not the same as
the definition of "nonaccrual loans," although the two categories overlap.
The Company may choose to place a loan on nonaccrual status due to payment
delinquency or uncertain collectibility, while not classifying the loan as
impaired provided the loan is not of a commercial or commercial real estate
classification. Factors considered by management in determining impairment
include payment status and collateral value. The amount of impairment for
these types of loans is determined by the difference between the present value
of the expected cash flows related to the loan, using the original interest
rate, and its recorded value, or as a practical expedient in the case of
collateralized loans, the difference between the fair value of the collateral
and the recorded amount of the loans. When foreclosure is probable,
impairment is measured based on the fair value of the collateral.
Mortgage loans secured by one-to-four family properties and all consumer loans
are large groups of smaller-balance homogeneous loans and are measured for
impairment collectively. Loans that experience insignificant payment delays,
which are defined as 90 days or less, generally are not classified as
impaired. Management determines the significance of payment delays on a
case-by-case basis taking into consideration all circumstances concerning the
loan, the credit worthiness and payment history of the borrower, the length
of the payment delay, and the amount of shortfall in relation to the
principal and interest owed.
PREMISES AND EQUIPMENT
- ----------------------
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed on the straight-line method over the estimated useful
lives of the assets. Expenditures for maintenance and repairs are charged
against income as incurred. Costs of major additions and improvements are
capitalized.
7
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INTANGIBLE ASSET
- ----------------
The intangible asset consists exclusively of a core deposit acquisition
premium. This core deposit acquisition premium, which was developed based
upon a specific core deposit life study, is amortized using the straight-line
method over eight years. Annual assessments of carrying value and remaining
amortization periods are made to determine possible carrying value impairment
and appropriate adjustments as deemed necessary. This asset is a component of
other assets on the consolidated balance sheet.
REAL ESTATE OWNED
- -----------------
Real estate owned acquired in the settlement of foreclosed loans is carried as
a component of other assets at the lower of cost or fair value minus estimated
cost to sell. Valuation allowances for estimated losses are provided when the
carrying value of the real estate acquired exceeds the fair value. Direct
costs incurred in the foreclosure process and subsequent holding costs
incurred on such properties are recorded as expenses of current operations.
EARNINGS PER SHARE
- ------------------
The Company provides dual presentation of basic and diluted earnings per
share. Basic earnings per share is calculated utilizing net income as
reported in the numerator and average shares outstanding in the denominator.
The computation of diluted earnings per share differs in that the dilutive
effects of any stock options, warrants, and convertible securities are
adjusted in the denominator.
EMPLOYEE BENEFITS
- -----------------
Employee benefits include contributions to a defined contribution Section
401(k) plan covering eligible employees. Limited matching contributions are
made for participating employees subject to plan criteria. In addition, an
elective contribution is made annually at the discretion of the Board of
Directors.
STOCK OPTIONS
- -------------
The Company maintains a stock option plan for the directors, officers, and key
employees. When the exercise price of the Company's stock options is greater
than or equal to the market price of the underlying stock on the date of the
grant, no compensation expense is recognized in the Company's financial
statements. Pro forma net income and earnings per share are presented to
reflect the impact of the stock option plan assuming compensation expense had
been recognized based on the fair value of the stock options granted under the
plan.
INCOME TAXES
- ------------
Deferred tax assets and liabilities are reflected at currently enacted income
tax rates applicable to the period in which such assets or liabilities are
expected to be realized or settled. As changes in tax laws or rates are
enacted, these assets and liabilities are adjusted through the provision for
income taxes.
COMPREHENSIVE INCOME
- --------------------
The Company is required to present comprehensive income and its components in
a full set of general purpose financial statements for all periods presented.
The Company's other comprehensive income is comprised exclusively of the net
unrealized gains and losses attributable to its investment securities
available for sale. The Company has elected to report the effects of
comprehensive income as a part of the Consolidated Statement of Changes in
Stockholders' Equity.
8
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
CASH FLOW INFORMATION
The Company has defined cash and cash equivalents as those amounts included
in the balance sheet captions Cash and due from banks, Interest-bearing
deposits with other banks, and Federal funds sold. Cash payments for
interest expense in 1999 and 1998 were $1,710,859 and $1,647,690,
respectively. Cash payments for income taxes in 1999 and 1998 were $41,055
and $157,816, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
- --------------------------------
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities," as amended in June 1999
by SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities Deferral of the Effective Date of FASB Statement No. 133." 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. Earlier adoption is
permitted for any fiscal quarter that begins after the issue date of this
Statement.
2. EARNINGS PER SHARE
There are 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 the composition of the
weighted-average common shares (denominator) used in the basic and diluted
earnings per share computation.
1999 1998
-------- --------
Weighted-average common shares
outstanding used to calculate
basic earnings per share 566,726 564,836
Additional common stock equivalents
(stock options) used to calculate
diluted earnings per share 8,236 8,199
-------- --------
Weighted-average common shares and
common stock equivalents used to
calculate diluted earnings per share 574,962 573,035
======== ========
3. STOCK SPLIT
On August 25, 1999, the Board of Directors approved a five-for-four stock
split. Total average shares outstanding and all per share amounts included
in the consolidated financial statements are based on the increased number of
shares giving retroactive effect to the stock split.
9
<PAGE>
4. INVESTMENT SECURITIES
The amortized cost and estimated market value of investment securities
available for sale are as follows:
<TABLE>
<CAPTION>
1999
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
other U.S. Government
agency securities $ 12,051,428 $ - $ (316,747) $ 11,734,681
Obligations of states and
political subdivisions 8,961,256 17,924 (246,529) 8,732,651
Mortgage-backed securities 265,227 - (5,732) 259,495
------------- ------------- ------------- -------------
Total debt securities 21,277,911 17,924 (569,008) 20,726,827
Equity securities 275,550 - - 275,550
------------- ------------- ------------- -------------
Total $ 21,553,461 $ 17,924 $ (569,008) $ 21,002,377
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
1998
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
other U.S. Government
agency securities $ 11,792,785 $ 65,966 $ (7,110) $ 11,851,641
Obligations of states and
political subdivisions 7,273,717 242,080 (3,053) 7,512,744
Mortgage-backed securities 354,396 1,983 (198) 356,181
------------- ------------- ------------- -------------
Total debt securities 19,420,898 310,029 (10,361) 19,720,566
Equity securities 236,950 - - 236,950
------------- ------------- ------------- -------------
Total $ 19,657,848 $ 310,029 $ (10,361) $ 19,957,516
============= ============= ============= =============
</TABLE>
The amortized cost and estimated market value of investment securities held
to maturity are as follows:
<TABLE>
<CAPTION>
1999
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Obligations of states and
political subdivisions $ 1,743,940 $ 10,474 $ (2,913) $ 1,751,501
Mortgage-backed securities 139,690 578 (1,240) 139,028
------------- ------------- ------------- -------------
Total $ 1,883,630 $ 11,052 $ (4,153) $ 1,890,529
============= ============= ============= =============
</TABLE>
10
<PAGE>
4. INVESTMENT SECURITIES (Continued)
<TABLE>
<CAPTION>
1999
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Obligations of states and
political subdivisions $ 1,498,790 $ 62,854 $ - $ 1,561,644
Mortgage-backed securities 200,799 3,022 - 203,821
------------- ------------- ------------- -------------
Total $ 1,699,589 $ 65,876 $ - $ 1,765,465
============= ============= ============= =============
</TABLE>
The amortized cost and estimated market value of debt securities by
contractual maturity at December 31, 1999 are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
-------------------------------- ---------------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Due in one year or less $ 2,399,633 $ 2,394,603 $ 257,752 $ 257,769
Due after one year through
five years 11,108,620 10,800,669 493,391 490,845
Due after five years through
ten years 7,618,642 7,384,896 1,117,384 1,126,661
Due after ten years 151,016 146,659 15,103 15,254
------------- ------------- ------------- -------------
Total $ 21,277,911 $ 20,726,827 $ 1,883,630 $ 1,890,529
============= ============= ============= =============
</TABLE>
Proceeds from the sales of securities available for sale and the gross
realized gains and losses for the years ended December 31, 1999 and 1998 were
as follows:
1999 1998
---------- ----------
Proceeds from sales $ 315,572 $ 600,179
Gross realized gains - 6,141
Gross realized losses 923 -
Investment securities with an amortized cost of $8,301,549 and $5,550,039 and
an estimated market value of $8,082,177 and $5,559,221 were pledged to secure
public deposits, securities sold under agreements to repurchase, and other
purposes as required by law at December 31, 1999 and 1998, respectively.
11
<PAGE>
5. LOANS
Major classifications of loans are summarized as follows:
1999 1998
------------- -------------
Commercial and agricultural $ 6,942,333 $ 4,449,554
Real estate mortgages:
Residential 16,181,827 13,476,313
Construction 611,849 -
Commercial 4,030,742 6,772,323
Consumer 4,819,435 4,241,132
------------- -------------
32,586,186 28,939,322
Less allowance for loan losses 375,280 340,197
------------- -------------
Net loans $ 32,210,906 $ 28,599,125
============= =============
The Company grants consumer, commercial, and mortgage loans to customers
throughout its trade area that encompasses the immediate Tri-State area of
East Liverpool, Ohio. Although the Company has a diversified loan portfolio,
a substantial portion of its debtors' ability to honor their loan agreements
is dependent upon the economic stability of the tri-state area.
Non-performing loans are comprised of commercial, mortgage, and consumer
loans which are on a nonaccrual basis, or contractually past due 90 days or
more as to interest or principal payment but are not nonaccrual status
because they are well secured or in process of collection. The Company had
non-performing loans of $275,704 and $178,727 as of December 31, 1999 and
1998, respectively. The Company had no impaired loans at December 31, 1999
or 1998.
As of December 31, 1999, aggregate loans of $60,000 or more extended to
officers, directors, and related affiliates or associates were $685,402. A
summary of activity during the year is as follows:
Amount
1998 Additions Collected 1999
----------- ----------- ----------- -----------
$ 677,392 $ 410,982 $ 402,972 $ 685,402
6. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for the years ended December 31,
1999 and 1998 are as follows:
1999 1998
----------- -----------
Balance, January 1 $ 340,197 $ 309,015
Add:
Provision charged to operations 79,200 54,272
Recoveries 13,705 15,029
Less loans charged off 57,822 38,119
----------- -----------
Balance, December 31 $ 375,280 $ 340,197
=========== ===========
12
<PAGE>
7. PREMISES AND EQUIPMENT
Major classifications of premises and equipment are summarized as follows at
December 31:
1999 1998
------------- -------------
Land and improvements $ 327,665 $ 318,560
Buildings and improvements 1,542,537 1,278,481
Leasehold improvements 240,204 238,310
Furniture, fixtures, and equipment 1,082,422 935,010
------------- -------------
3,192,828 2,770,361
Less accumulated depreciation 1,093,695 920,266
------------- -------------
Total $ 2,099,133 $ 1,850,095
============= =============
Depreciation and amortization charged to operations was $173,429 in 1999 and
$149,776 in 1998.
8. DEPOSITS
Time deposits include certificates of deposit in denominations of $100,000 or
more. Such deposits aggregated $5,877,236 and $3,009,473 at December 31,
1999 and 1998, respectively.
Maturities on time deposits of $100,000 or more are as follows at December 31:
1999
----------------
Three months or less $ 3,821,782
Three to twelve months 1,630,606
Over one year 424,848
----------------
Total $ 5,877,236
================
9. SHORT-TERM BORROWINGS
Short-term borrowings consist of federal funds purchased, securities sold
under agreement to repurchase, and FHLB adjustable rate borrowings with terms
of 30 days or less.
The outstanding balances and related information for short-term borrowings
are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------- ---------------------------
Amount Rate Amount Rate
------------- ------- ------------- -------
<S> <C> <C> <C> <C>
Balance at year-end $ 4,489,199 5.30 % $ 1,500,000 3.64 %
Average balance outstanding
during the year 2,594,539 4.06 1,278,461 4.42
Maximum amount outstanding
at any month-end 4,489,199 1,500,000
</TABLE>
The Bank has a line of credit with a borrowing limit of approximately $2.0
million with the Federal Home Loan Bank of Cincinnati ("FHLB") as of December
31, 1999. This credit line is subject to annual renewal and incurs no
service charges. Outstanding borrowings on this line are collateralized by a
blanket security agreement on qualifying residential mortgage loans and the
Bank's investment in stock of the FHLB. There were no borrowings outstanding
on this line of credit for the years ended December 31, 1999 or 1998.
13
<PAGE>
10. OTHER EXPENSES
The following is an analysis of other expenses:
<TABLE>
<CAPTION>
1999 1998
-------------- ---------------
<S> <C> <C>
Stationery, printing, and supplies $ 139,701 $ 121,557
State franchise tax 69,000 64,318
Postage 67,993 60,930
Advertising and public relations 51,668 45,441
Other 408,725 417,014
-------------- ---------------
Total $ 737,087 $ 709,260
============== ===============
</TABLE>
11. INCOME TAXES
The provision for income taxes consists of:
1999 1998
-------------- ---------------
Current $ 52,504 $ 93,937
Deferred 23,104 21,134
-------------- ---------------
Total $ 75,608 $ 115,071
============== ===============
The components of the net deferred tax liability are as follows at December 31:
1999 1998
-------------- ---------------
Deferred tax assets:
Net unrealized loss on securities $ 187,368 $ -
Provision for loan losses 116,135 99,956
Other 6,318 3,596
-------------- ---------------
Gross deferred tax assets 309,821 103,552
-------------- ---------------
Deferred tax liabilities:
Net unrealized gain on securities - 101,887
Depreciation 25,584 18,243
Accrual to cash conversion 98,248 75,463
Other 42,652 30,773
-------------- ---------------
Gross deferred tax liabilities 166,484 226,366
-------------- ---------------
Net deferred tax liability $ 143,337 $ (122,814)
============== ===============
14
<PAGE>
11. INCOME TAXES (Continued)
The reconciliation of the federal statutory rate and the Company's effective
income tax rate is as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------- ------------------------
% of % of
Pre-tax Pre-tax
Amount Income Amount Income
------------- ------- ------------ -------
<S> <C> <C> <C> <C>
Provision at statutory rate $ 212,728 34.0 % $ 225,414 34.0 %
Effect of tax-free income (154,271) (24.7) (105,070) (15.8)
Other 17,151 2.7 (5,273) (0.8)
------------- ------- ------------ -------
Actual tax expense and
effective rate $ 75,608 12.0 % $ 115,071 17.4 %
============= ======= ============ =======
</TABLE>
12. EMPLOYEE BENEFITS
SAVINGS PLAN
- ------------
The Bank maintains a trusteed Section 401(k) plan for all eligible employees.
The Bank makes matching contributions for eligible employees of 25 percent of
the employee contributions annually, to a maximum of 12 percent of base
salary. The Bank also makes discretionary contributions as determined
annually by the Board of Directors. The Bank's total contribution to this
plan was $29,136 in 1999 and $15,698 in 1998.
ESOP
- ----
The Company maintains an Employee Stock Ownership Plan ("ESOP") covering
substantially all employees and officers. The Trustee has discretionary
authority to purchase shares of common stock of the Company in the open
market. The amount of the contribution to the ESOP is at the discretion of
the Board of Directors with benefits vesting over a seven-year period.
Contributions totaling $6,900 and $6,500 were recorded during 1999 and 1998,
respectively. The Trustee held 4,292 and 3,434 shares of the Company's
common stock at December 31, 1999 and 1998, respectively.
STOCK OPTION PLAN
- -----------------
The Company maintains a stock option plan for officers and nonemployee
directors. A total of 68,750 shares of authorized but unissued common stock
were reserved for issuance under the plan. At December 31, 1999, 13,400
shares are available for future grant. The stock options typically have
expiration terms of five or ten years, subject to certain extensions and
early terminations and are fully vested on the grant date. The per share
exercise price of a stock option granted shall, at a minimum, equal the fair
market value of a share of common stock on the date the option is granted.
Proceeds from the exercise of the stock are credited to common stock.
15
<PAGE>
12. EMPLOYEE BENEFITS (Continued)
STOCK OPTION PLAN (Continued)
- -----------------
The following table presents share data related to the outstanding options:
<TABLE>
<CAPTION>
Officers' and Weighted-
Employees' Directors' average
Stock Stock Exercise
Options Options Price
--------- -------- ----------
<S> <C> <C> <C>
Outstanding and excercisable at December 31, 1997 13,062 10,313 $ 15.27
Granted 11,000 8,750 22.40
Exercised - - -
Forfeited (1,375) - 15.27
--------- -------
Outstanding and excercisable at December 31, 1998 22,687 19,063 $ 18.64
Granted 7,650 5,950 26.40
Exercised (2,968) - 18.27
Forfeited - - -
--------- -------
Outstanding and excercisable at December 31, 1999 27,369 25,013 $ 20.68
========= =======
</TABLE>
The following table summarizes the characteristics of stock options
outstanding at December 31, 1999:
Outstanding and Exercisable
-------------------------------------------------------
Average
Average Exercise
Exercise Price Shares Life Price
-------------------------------------------------------
$ 15.27 20,282 2.62 $15.27
$ 22.40 18,500 3.62 $22.40
$ 26.40 13,600 9.65 $26.40
-------
Total 52,382
The Company accounts for its stock option plans under provisions of APB
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
Interpretations. Under this Opinion, no compensation expense has been
recognized with respect to the plans because the exercise price of the
Company's employee stock options equals the market price of the underlying
stock on the grant date.
For purposes of computing pro forma results, the Company estimated the fair
values of stock options using the Black-Scholes option pricing model. The
model requires the use of subjective assumptions which can materially effect
fair value estimates. Therefore, the pro forma results are estimates of
results of operations as if compensation expense had been recognized for the
stock option plans. The fair value of each stock option granted was
estimated using the following weighted-average assumptions for grants in 1999
and 1998: (1) expected dividend yields were two percent; (2) risk-free
interest rates ranging from 4.34 percent to 6.68 percent; (3) expected
volatility of 5.00 percent; and (4) expected lives of options of five and ten
years.
16
<PAGE>
12. EMPLOYEE BENEFITS (Continued)
STOCK OPTION PLAN (Continued)
- -----------------
Had compensation expense for the stock option plans been recognized in
accordance with the fair-value accounting provisions of SFAS No. 123,
"Accounting for Stock-based Compensation," net income applicable to common
stock, basic and diluted net income per common share for the years ended
December 31, 1999 and 1998, would have been as follows:
1999 1998
-------------- --------------
Net income applicable to common stock:
As reported $ 550,063 $ 547,911
Pro forma 474,369 473,229
Basic net income per common share:
As reported $ 0.97 $ 0.97
Pro forma 0.84 0.84
Diluted net income per common share:
As reported $ 0.96 $ 0.96
Pro forma 0.83 0.82
13. COMMITMENTS
In the normal course of business, the Company makes various commitments not
reflected in the accompanying consolidated financial statements. The Company
offers such products to enable its customers to meet their financing
objectives. The instruments involve, to varying degrees, elements of credit
and interest rate risk in excess of the amount recognized in the consolidated
balance sheet. The Company's exposure to credit loss is represented by the
contractual amounts as disclosed below. Losses, if any, are charged to the
allowance for loan losses. The Company minimizes its exposure to credit loss
under these commitments by subjecting them to credit approval, review
procedures, and collateral requirements as deemed necessary.
The off-balance sheet commitments were comprised of the following at
December 31:
1999 1998
---------------- -----------------
Commitments to extend credit $ 4,634,143 $ 4,804,106
Standby letters of credit 159,109 173,372
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the loan agreement.
These commitments are comprised primarily of available commercial and
personal lines of credit and loans granted but not yet funded. The Company
does not charge fees for the customer credit lines. Since many of the
commitments are expected to expire without being fully drawn upon, the
contractual amounts do not necessarily represent future funding requirements.
Standby letters of credit represent conditional commitments issued by the
Company to guarantee the performance of a customer to a third party. These
instruments are issued primarily to support bid or performance-related
contracts. The coverage period for these instruments is typically a one-year
period with an annual renewal option subject to prior approval by management.
The Company holds collateral for these instruments as deemed necessary.
17
<PAGE>
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values at December 31, of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------- -------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks,
interest-bearing deposits with
with other banks, and federal
funds sold $ 5,347,798 $ 5,347,798 $ 5,499,737 $ 5,499,737
Investment securities 22,886,007 22,892,906 21,657,105 21,722,981
Net loans 32,210,906 31,908,906 28,599,125 29,858,000
Accrued interest receivable 475,320 475,320 358,904 358,904
------------ ------------ ------------ ------------
Total $ 60,920,031 $ 60,624,930 $ 56,114,871 $ 57,439,622
============ ============ ============ ============
Financial liabilities:
Deposits $ 53,676,013 $ 53,618,013 $ 51,349,269 $ 51,556,000
Short-term borrowings 4,489,199 4,489,199 1,500,000 1,500,000
Other borrowings - - 67,311 67,311
Accrued interest payable 74,931 74,931 55,402 55,402
------------ ------------ ------------ ------------
Total $ 58,240,143 $ 58,182,143 $ 52,971,982 $ 53,178,713
============ ============ ============ ============
</TABLE>
Financial instruments are defined as cash, evidence of an ownership interest
in an entity, or a contract which creates an obligation or right to receive
or deliver cash or another financial instrument from/to a second entity on
potentially favorable or unfavorable terms.
Fair value is defined as the amount at which a financial instrument could be
exchanged in a current transaction between willing parties other than in a
forced or liquidation sale. If a quoted market price is available for a
financial instrument, the estimated fair value would be calculated based upon
the market price per trading unit of the instrument.
If no readily available market exists, the fair value estimates for financial
instruments are based upon management's judgment regarding current economic
conditions, interest rate risk, expected cash flows, future estimated losses,
and other factors as determined through various option pricing formulas or
simulation modeling. As many of these assumptions result from judgments made
by management based upon estimates which are inherently uncertain, the
resulting estimated fair values may not be indicative of the amount realizable
in the sale of a particular financial instrument. In addition, changes in
the assumptions on which the estimated fair values are based may have a
significant impact on the resulting estimated fair values.
As certain assets such as deferred tax assets and premises and equipment are
not considered financial instruments, the estimated fair value of financial
instruments would not represent the full value of the Company.
The Company employed simulation modeling in determining the estimated fair
value of financial instruments for which quoted market prices were not
available based upon the following assumptions:
CASH AND DUE FROM BANKS, INTEREST-BEARING DEPOSITS WITH OTHER BANKS, FEDERAL
- ----------------------------------------------------------------------------
FUNDS SOLD, ACCRUED INTEREST RECEIVABLE, SHORT-TERM BORROWINGS, AND ACCRUED
- ---------------------------------------------------------------------------
INTEREST PAYABLE
- ----------------
The fair value is equal to the current carrying value.
18
<PAGE>
14. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
INVESTMENT SECURITIES
- ---------------------
The fair value of investment securities is equal to the available quoted
market price. If no quoted market price is available, fair value is
estimated using the quoted market price for similar securities.
LOANS, DEPOSITS, AND OTHER BORROWINGS
- -------------------------------------
The fair value of loans is estimated by discounting the future cash flows
using a simulation model which estimates future cash flows and constructs
discount rates that consider reinvestment opportunities, operating expenses,
noninterest income, credit quality, and prepayment risk. Demand, savings,
and money market deposit accounts which are due within 30 days are valued at
the amount payable as of year-end. Fair values for time deposits and other
borrowings are estimated using a discounted cash flow calculation that
applies contractual costs currently being offered in the existing portfolio
to current market rates being offered for deposits and notes of similar
remaining maturities.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
- ----------------------------------------------------------
These financial instruments are generally not subject to sale, and estimated
fair values are not readily available. The carrying value, represented by
the net deferred fee arising from the unrecognized commitment or letter of
credit, and the fair value, determined by discounting the remaining
contractual fee over the term of the commitment using fees currently charged
to enter into similar agreements with similar credit risk, are not considered
material for disclosure. The contractual amounts of unfunded commitments and
letters of credit are presented in Note 13.
15. REGULATORY MATTERS
CASH AND DUE FROM BANKS
- -----------------------
The district Federal Reserve Bank requires the Bank to maintain certain
reserve balances. As of December 31, 1999 and 1998, the Bank had required
reserves of $536,000 and $552,000, respectively, comprised of vault cash and
a depository amount held with the Federal Reserve Bank.
LOANS
- -----
Federal law prevents the Company from borrowing from the Bank unless the
loans are secured by specific obligations. Further, such secured loans are
limited in amount to ten percent of the Bank's capital.
DIVIDENDS
- ---------
The Bank is subject to a dividend restriction that generally limits the
amount of dividends that can be paid by a national bank. Prior approval of
the Comptroller of the Currency is required if the total of all dividends
declared by a national bank in any calendar year exceeds net profits, as
defined for the year, combined with its retained net profits for the two
preceding calendar years less any required transfers to surplus. Using this
formula, the amount available for payment of dividends by the Bank to the
Company in 2000, without approval of the Comptroller, will be limited to
$864,000, plus 2000 net profits retained up to the date of the dividend
declaration.
19
<PAGE>
15. REGULATORY MATTERS (Continued)
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 December 31, 1999, 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 December 31, 1999 and 1998, 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 capital position of the Company does not materially differ from the
Bank's; therefore, the following table sets forth the Company's capital
position and minimum requirements as of December 31:
<TABLE>
<CAPTION>
1999 1998
------------------------ -------------------------
Amount Ratio Amount Ratio
------------ ------- ------------ --------
<S> <C> <C> <C> <C>
Total Capital
(to Risk-weighted Assets)
- ---------------------------
Actual $ 5,761,434 17.10 % $ 5,106,895 16.64 %
For Capital Adequacy Purposes 2,695,040 8.00 2,455,680 8.00
To Be Well Capitalized 3,368,800 10.00 3,069,600 10.00
Tier I Capital
(to Risk-weighted Assets)
- ---------------------------
Actual $ 5,386,154 15.99 % $ 4,766,698 15.53 %
For Capital Adequacy Purposes 1,347,520 4.00 1,227,840 4.00
To Be Well Capitalized 2,021,280 6.00 1,841,760 6.00
Tier I Capital
(to Average Assets)
- ---------------------
Actual $ 5,386,154 8.46 % $ 4,766,698 8.19 %
For Capital Adequacy Purposes 2,546,120 4.00 2,329,200 4.00
To Be Well Capitalized 3,182,650 5.00 2,911,500 5.00
</TABLE>
20
<PAGE>
16. 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
began on December 14, 1999, after receiving approval from the Securities and
Exchange Commission. Total shares being offered is 148,110 at a price of $27
per share. The offering will be closed at the direction of the Board of
Directors at any time after January 13, 2000, and on or prior to February 14,
2000, unless extended by the Company for an additional 90 days. As of
December 31, 1999, net proceeds from stock issued to that date amounted to
$140,577. The Company used these proceeds for additional capitalization of
the Bank.
17. PARENT COMPANY
Following are condensed financial statements for the parent company:
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Cash $ 18,855 $ 8,800
Investment in subsidiaries 5,082,910 5,041,638
Other assets 16,845 27,824
------------- -------------
TOTAL ASSETS $ 5,118,610 $ 5,078,262
============= =============
TOTAL LIABILITIES $ - $ 549
STOCKHOLDERS' EQUITY 5,118,610 5,077,713
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,118,610 $ 5,078,262
============= =============
</TABLE>
CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
December 31,
1999 1998
------------- -------------
<S> <C> <C>
INCOME
Dividends from subsidiary bank $ 121,812 $ 131,620
EXPENSES 11,396 16,643
------------- -------------
Income before income taxes 110,416 114,977
Income tax benefit (3,875) (5,700)
------------- -------------
Income before equity in undistributed earnings of subsidiaries 114,291 120,677
Equity in undistributed earnings of subsidiaries 435,772 427,234
------------- -------------
NET INCOME $ 550,063 $ 547,911
============= =============
</TABLE>
21
<PAGE>
17. PARENT COMPANY (Continued)
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
December 31,
1999 1998
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 550,063 $ 547,911
Adjustment to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of subsidiaries (435,772) (427,234)
Other, net 10,435 17,790
------------- -------------
Net cash provided by operating activities 124,726 138,467
------------- -------------
FINANCING ACTIVITIES
Cash dividends paid, including cash paid in lieu of
fractional shares (142,496) (129,667)
Capital contribution to banking subsidiary (150,000) -
Capital contribution to service corporation subsidiary (17,000) -
Common stock issued 194,825 -
------------- -------------
Net cash used for financing activities (114,671) (129,667)
------------- -------------
Net increase in cash 10,055 8,800
CASH AT BEGINNING OF PERIOD 8,800 -
------------- -------------
CASH AT END OF PERIOD $ 18,855 $ 8,800
============= =============
</TABLE>
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following is Management's discussion and analysis of the financial
condition and results of operations of Tri-State 1st Bank, Inc. for the years
ended December 31, 1999 and 1998. The discussion should be read in
conjunction with the consolidated financial statements and notes thereto and
the summary financial information included elsewhere in this annual report.
Business
- --------
Tri-State 1st Bank, Inc. (the "Company") is an Ohio Corporation organized as
the parent company of 1st National Community Bank (the "Bank"), and Gateminder
Corporation ("Gateminder"). The Company was formed in April 1996, and
controls all of the capital stock of the Bank, a national banking association
and Gateminder Corporation, an Ohio corporation. The company is a bank
holding company, which, under existing laws, is restricted to activities
generally relating to banking. The Company's primary regulator is the Board of
Governors of the Federal Reserve System.
The Bank was chartered as a national banking association in June 1987,
headquartered near East Liverpool, Ohio. Business is conducted through six
full-service banking offices located throughout the tri-state area of
Columbiana County, Ohio, Hancock County, West Virginia and Beaver County,
Pennsylvania. The Bank operates as a 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 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 provides 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.
The Company's results of operations are primarily dependent on the operations
of the Bank. The Bank's results of operations are primarily dependent on its
net interest income, which is the difference between interest earned on its
loans and investment securities portfolio and other interest earning assets,
and its cost of funds consisting of interest expense paid on its deposits and
other borrowings. Net interest income is also affected by the relative
amounts of interest earning assets and liabilities. Net income of the Bank is
also impacted by its provision for loan losses, as well as other operating
income and expenses. Earnings of the Bank are also impacted by general local
economic, competitive and regulatory conditions, particularly changes in
market interest, and actions of regulatory agencies.
Management Strategy
- -------------------
The Company's philosophy is to provide personal community banking services
through strategic office locations that offer customer friendly hours and a
variety of loan and deposit products tailored to fit the needs of its
customers.
The lending strategy of the Bank has historically focused on the origination
and retention of real estate commercial mortgages, one-to-four family mortgage
loans and, to a lessor extent, working capital commercial loans (in the form
of credit lines and term notes), personal loans, automobile loans and home
equity loans.
<PAGE>
Management Strategy (continued)
- -------------------------------
The Bank attempts to manage the interest rates it pays on deposits, while
maintaining a stable to growing deposit base by providing convenient and
quality service at competitive rates to its customers. Historically, the Bank
has relied upon its customer deposit base as its primary source of funds but
has from time to time borrowed "other funds" through credit arrangements with
the Federal Home Loan Bank of Cincinnati ("FHLB"), the use of repurchase
agreements with its business customers and federal funds purchased.
The Bank monitors its interest rate sensitivity through an asset/liability
management program. The goal of this program is to manage the relationship
between interest-earning assets and interest-bearing liabilities to minimize
the fluctuations in net interest spread and achieve constant growth in net
interest income during periods of changing interest rates.
Summary of Financial Condition
- ------------------------------
The consolidated assets of Tri-State 1st Bank were $63,456,000 at December 31,
1999, an increase of $5,152,000 or 8.8% over assets at December 31, 1998.
Total asset growth for 1999 was achieved through a 12.6% increase in the
Bank's loan portfolio that was funded by deposit and short-term borrowing
increases during the same period. Total earning assets, which principally
include loans, investment securities and federal funds sold equaled
$55,653,000 at December 31, 1999, an increase of $3,876,000 or 7.5% over total
earning assets at December 31, 1998. The composition of earning assets changed
slightly from 1998 to 1999, with loans and securities comprising 58.6% and
41.1% of earning assets, respectively, in 1999 compared to 55.9% and 41.8%,
respectively, at year-end 1998.
Investment Securities and Securities Available for Sale
- -------------------------------------------------------
The investment activities of the Company serve a key role in managing the
overall yield on earning assets while supporting interest rate sensitivity and
liquidity positions. Securities purchased with the intent and ability to
retain until maturity are classified as held to maturity and carried at
amortized cost. All other securities are classified as securities available
for sale and are carried at market value.
The investment securities available for sale portfolio serves a primary role
in the overall context of balance sheet management by the Company. The
decision to purchase or sell securities is based upon the current assessment
of economic and financial conditions, including the interest rate environment
and other on and off-balance sheet positions. The investment securities
available for sale portfolio was $21,002,000 at December 31, 1999 compared to
$19,958,000 at December 31, 1998, an increase of $1,045,000 or 5.2%.
Investment securities held to maturity increased $184,000 or 10.8% in 1999
when compared to the prior year. This increase was attributable to a $400,000
security purchased in 1999 offset by scheduled maturities and principal
repayments.
Loans
- -----
Loans grew 12.6% in 1999, increasing to $32,586,000 at December 31, 1999 from
$28,939,000 at prior end of year. Total loans originated for 1999 were $15.2
million, offset by pay-downs and payoffs. The reason for the strong loan
growth in 1999 was due, in part, to an overall increase in loan demand from a
strong local and national economy and the successful efforts in generating new
lending business within the Bank's market area through a Business Development
Program.
<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 its customers. Total deposits increased
$2,327,000 or 4.5% when compared to total deposits at December 31, 1998.
Demand deposit accounts decreased by $485,000 or 2.4% while savings and money
market accounts increased $193,000 or 1.9% and $38,000 or .82%, respectively.
The Company's growth occurred mostly in time deposits, which increased
$2,581,000 or 16.1%.
Borrowings
- ----------
From time to time the company uses various funding sources other than deposits
to provide the funds necessary for the loan and investment securities
portfolios. Total borrowings at December 31, 1999 consisted of securities sold
under repurchase agreements and advances with the Federal Home Loan Bank of
Cincinnati.
Securities sold under repurchase agreements are collateralized borrowing
agreements whereby the Bank agrees to sell certain bank owned investment
securities to business customers of the bank. The exact same securities are
then returned to the Bank upon maturity of the agreement. Total securities
sold under repurchase agreements increased $989,000 or 65.9% in 1999 as a
result of increases in the amounts of current agreements outstanding as well
as additional new agreements.
Advances with the Federal Home Loan Bank of Cincinnati increased by $1,933,000
in 1999 due to two additional advances in the amount of $1 million each offset
by the maturity of $67,000 in two other advances during the same period.
Summary of Earnings
- -------------------
The Company's 1999 net income was $550,000, increasing by $2,000, or .39%,
from 1998's net income of $548,000. On a per share basis net income for 1999
was unchanged from 1998 at $0.97 and $0.96 per basic and diluted earnings per
share, respectively. The minimal increase in net income for 1999 was a result
of increases in net interest income and noninterest income, offset by
increases in noninterest expenses.
Interest Income
- ---------------
Interest income on loans increased $180,000 or 6.8% during 1999 when compared
to 1998. This increase was a result of a $3,016,000 or 11.1% increase in the
average loan balance outstanding during the 1999 period offset by a decrease
on the yield earned.
Interest income on federal funds sold decreased $68,000 or 29.6% during 1999
when compared to 1998 as a result of a $913,000 or 21.2% decrease in the
average balance outstanding during the 1999 period as well as a decrease on
the yield earned.
Interest income earned on investment securities increased in 1999 by $154,000
or 14.7% from 1998. This increase was a result of an increase of $4,023,000 or
21.9% in the average balance outstanding offset by a decrease in the yield
earned on the investment portfolio.
Interest Expense
- ----------------
Interest expense on deposits for 1999 increased $26,000 or 1.6% over 1998's
interest expense due to a $5,123,000 or 12.5% increase in total average
interest-bearing deposits outstanding in 1999 offset by a decrease in the cost
of funds paid on these deposits during the same period.
<PAGE>
Interest Expense (continued)
- ----------------------------
Interest expense on total borrowings increased $42,000 or 65.1% in 1999 when
compared to 1998. This increase was due to an increase of $1,224,000 or 87.6%
in the average balance of borrowed funds outstanding, offset by a decrease in
the rate paid on these funds.
Net Interest Income
- -------------------
Net interest income is the amount that interest income generated by earning
assets, including securities and loans, exceeds interest expense associated
with interest-bearing liabilities, including deposits and borrowed funds. Net
interest income is the principal source of the Company's earnings. Interest
rate fluctuations, as well as changes in the amounts and type of earning
assets and interest-bearing liabilities combine to effect net interest income.
Net interest income for 1999 totaled $2,485,000, an increase of $198,000, or
8.7%, over 1998. The increase in net interest income was the result of an
increase in the Company's average earning assets offset by a decrease on the
yield earned on these assets, offset by lessor increases in the average
balance and cost of funds on interest-bearing liabilities.
<PAGE>
Average Balances and Average Yields
- -----------------------------------
The following table sets forth certain information relating to the Company's
consolidated average balance sheets and statements of income for the years
ended December 31, 1999 and 1998, and reflects the average yield on assets
and average cost of liabilities for the periods indicated. Such yields and
costs are derived by dividing income or expense by the average daily balance
of assets or liabilities, respectively, for the periods shown.
<TABLE>
<CAPTION>
For the Year Ended
-----------------------------------------------------------------------
1999 1998
--------------------------------- -----------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
----------- ---------- ------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold $ 3,397,335 $ 166,956 4.91 % $ 4,310,739 $ 235,262 5.46 %
Taxable investment securities 12,529,282 726,004 5.79 % 11,215,192 693,116 6.18 %
Non taxable investment
securities (2) 9,863,058 712,714 7.23 % 7,153,918 529,739 7.40 %
Loans (1)(2) 30,154,209 2,845,451 9.44 % 27,137,753 2,655,293 9.78 %
----------- ---------- ------- ----------- ---------- -------
Total interest-earning assets 55,943,884 4,451,125 7.96 % 49,817,602 4,113,410 8.26 %
---------- ----------
Noninterest-earning assets 5,872,733 5,339,074
----------- -----------
Total assets $61,816,617 $55,156,676
=========== ===========
Interest-bearing liabilities:
Interest bearing demand $12,368,312 309,114 2.50 % $10,418,043 291,579 2.80 %
Money market accounts 4,795,725 130,959 2.73 % 4,917,706 143,090 2.91 %
Savings deposits 10,811,109 269,397 2.49 % 9,809,517 286,792 2.92 %
Time deposits 18,062,780 897,704 4.97 % 15,766,396 860,698 5.46 %
Short-term borrowings 2,594,539 105,232 4.06 % 1,278,461 56,508 4.42 %
Other borrowings 26,245 1,169 4.45 % 118,440 7,944 6.71 %
----------- ---------- ------- ----------- ---------- -------
Total interest-bearing liabilities 48,658,710 1,713,575 3.52 % 42,308,563 1,646,611 3.89 %
---------- ----------
Noninterest-bearing liabilities 8,096,042 8,032,615
Stockholders' equity 5,061,865 4,815,498
---------- ----------
Total liabilities and
stockholders' equity $61,816,617 $55,156,676
=========== ===========
Net earning assets $ 7,285,174 $ 7,509,039
=========== ===========
Net interest income $ 2,737,550 $ 2,466,799
=========== ===========
Net interest spread (3) 4.44 % 4.37 %
======= =======
Net interest margin (4) 4.89 % 4.95 %
======= =======
</TABLE>
(1) For the purpose of these computations, non-accrual loans (if any) are
included in the daily average loan amounts outstanding and interest on
loans includes fee income.
(2) Yields are computed on a tax equivalent basis using a 34% federal income
tax rate.
(3) Net interest rate spread represents the difference between the average
yield on interest-earning assets, and the average cost of interest-bearing
liabilities.
(4) Net interest margin is calculated by dividing the difference between total
interest earned and total paid by total interest earning assets.
<PAGE>
Rate/Volume Analysis
- --------------------
The following table presents the extent to which changes in interest rates
and changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate), (ii) changes attributable to changes in rate
(changes in rate multiplied by prior volume) and (iii) the changes
attributable to the combined impact of volume and rate. The change in
interest rate due to both rate and volume in the rate/volume analysis table
have been allocated to changes due to rate and volume in proportion to the
absolute amounts of the changes in each.
<TABLE>
<CAPTION>
For the Year Ended December 31, For the Year Ended December 31,
1999 vs. 1998 1998 vs. 1997
-------------------------------------------- ------------------------------------------
Increase (Decrease) Due to: Increase (Decrease) Due to:
-------------------------------------------- --------------------------------
Total Total
Increase Increase
Volume Rate (Decrease) Volume Rate (Decrease)
---------- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold $ (46,217) $ (22,089) $ (68,306) $ 99,211 $ (1,227) $ 97,984
Taxable investment securities 68,344 (35,456) 32,888 184,434 (8,819) 175,615
Nontaxable investment securities (1) 195,450 (12,475) 182,975 179,302 (5,531) 173,771
Loans (1) 279,291 (89,133) 190,158 170,356 (22,594) 147,762
---------- ----------- ----------- ---------- ---------- ----------
Total interest-earning assets 496,868 (159,153) 337,715 633,303 (38,171) 595,132
---------- ----------- ----------- ---------- ---------- ----------
Interest-bearing liabilities:
Interest-bearing demand 36,353 (18,818) 17,535 66,609 4,946 71,555
Money market accounts (3,486) (8,645) (12,131) (610) (3,936) (4,546)
Savings deposits 36,552 (53,947) (17,395) 39,982 (7,251) 32,731
Time deposits 87,122 (50,116) 37,006 159,003 16,465 175,468
Short-term borrowings 52,526 (3,802) 48,724 45,087 (166) 44,921
Other borrowings (4,285) (2,490) (6,775) (7,111) (22) (7,133)
---------- ----------- ----------- ---------- ---------- ----------
Total interest-bearing liabilities 204,782 (137,818) 66,964 302,960 10,036 312,996
---------- ----------- ----------- ---------- ---------- ----------
Net change in net interest income $ 292,086 $ (21,335) $ 270,751 $ 330,343 $ (48,207) $ 282,136
========== =========== =========== ========== ========== ==========
</TABLE>
(1) Computed on a tax equivalent basis using a 34% federal income tax rate.
<PAGE>
Provision and Allowance for Loan Losses
- ---------------------------------------
The current expense reflecting expected credit losses is referred to as the
provision for loan losses on the consolidated statements of income. Actual
losses on loans are charged against the allowance for loan losses, which is a
reserve built up on the consolidated balance sheet. The Company's policy is
to charge-off loans when, in Management's opinion, the collection of loan
principal is in doubt. All loans charged-off are subject to continuous review
and concerted efforts are made to maximize the recovery of charged-off loans.
In order to determine the adequacy of the allowance for loan losses,
Management considers the risk classification of loans, delinquency trends,
charge-off experience, credit concentrations, economic conditions, and other
relevant factors. The allowance is maintained at a level determined according
to established methodologies by charging the provision to operations.
The provision for loan losses charged to operations in 1999 was $79,000,
compared to $54,000 charged in 1998. Actual losses, net of recoveries, were
$44,000 in 1998, and $23,000 in 1998. Net charge-offs as a percentage of the
balance of the allowance for loan losses at the beginning of the year was
13.0% and 7.5% in 1999 and 1998, respectively. The amount of the provision for
both periods was based on such factors as the increase in the balance of the
loan portfolio outstanding and Management's ongoing analysis of the adequacy
of the allowance for loan losses.
The Company's allowance for loan losses increased at year-end 1999 to $375,000
from $340,000 at December 31,1998. At December 31, 1999 the allowance
represented 1.15% of loans compared to 1.18% at year-end 1998. The Company
believes that the allowance for loan losses at December 31, 1999 of $375,000
is adequate to cover losses inherent in the portfolio as of such date.
However, there can be no assurance that the Company will not sustain losses in
future periods, which could be substantial in relation to the size of the
allowance at December 31, 1999.
Other Operating Income
- ----------------------
Total other operating income increased $62,000 or 12.7% in 1999 compared to
1998. Service fees on deposit accounts increased $74,000 or 24.6% and related
to the increase in the number of deposit accounts serviced by the bank and to
a lessor extent, an increase in service fees charged to customers. Net gains
or losses from the sale of securities decreased in 1999 as a result of the
sale of $316,000 in investment securities available for sale at a net loss of
$1,000 compared to a gross profit of $6,000 in 1998 from the sale of $600,000
in securities.
<PAGE>
Other Operating Expense
- -----------------------
Total salary and employee benefits increased $184,000 or 19.0% in 1999.
Salaries and wages increased $149,000 or 17.7% primarily due to the hiring of
additional personnel throughout 1999, and to a lessor extent, normal merit
increases relating to existing employees. Total full-time equivalent
employees increased 17% in 1999 as a result of increased staffing level needs
and the opening of the new Midland branch. Total employee benefit costs also
increased in 1999 with much of the increase stemming from increased health
insurance costs.
Net occupancy expense increased $55,000 or 26.3% in 1999 due to increased
costs associated with the expansion of the bank's branch office network. In
March, construction was completed on an annex building for the Company's
Corporate Offices. The Midland branch office was opened in November and in
late 1998, the Wal-Mart in-store branch was opened.
Other expenses increased $28,000 or 3.9%, in 1999 which was due to increases
in overall general and administrative expenses such as, stationery and
printing, postage and telephone costs and MAC expenses.
The provision for income tax was $76,000 in 1999 compared to $115,000 in 1998.
This represents a decrease of $39,000 or 34.3% which is due to an increase in
tax exempt income and an overall decrease in taxable income.
Capital Resources
- -----------------
The Company's total consolidated stockholders' equity increased $41,000 or
.81% when compared to total stockholders' equity at December 31, 1998. The
increase is primarily a result of net income of $550,000 earned, less cash
dividends declared to shareholders of $142,000 and net proceeds received of
$141,000 from common shares issued, offset by a decrease of $561,000 in the
accumulated other comprehensive income (loss) on investment securities
available for sale.
Impact of Inflation and Changing Prices
- ---------------------------------------
The financial statements and related data have been prepared in accordance
with general accepted accounting principles which require the measurement of
financial position and operating results in terms of historical dollars,
without consideration for changes in the relative purchasing power of money
over time caused by inflation.
The effects of inflation on the local economy and Tri-State's operating
results have been relatively modest for the past several years. However,
unlike industrial companies, nearly all of the assets and liabilities of a
financial institution are monetary in nature. As a result, interest rates
have a more significant impact on a financial institution's performance than
general levels of inflation. Interest rates do not necessarily move in the
same direction or in the same magnitude as the price of goods or services,
since such goods and services are affected by inflation. In the current
interest rate environment, liquidity and the maturity structure of the Bank's
assets and liabilities are critical to the maintenance of the acceptable
performance levels.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1999
<CASH> 5,167
<INT-BEARING-DEPOSITS> 81
<FED-FUNDS-SOLD> 100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 21,002
<INVESTMENTS-CARRYING> 1,884
<INVESTMENTS-MARKET> 1,891
<LOANS> 32,586
<ALLOWANCE> 375
<TOTAL-ASSETS> 63,456
<DEPOSITS> 53,676
<SHORT-TERM> 4,489
<LIABILITIES-OTHER> 172
<LONG-TERM> 0
0
0
<COMMON> 4,085
<OTHER-SE> 1,034
<TOTAL-LIABILITIES-AND-EQUITY> 63,456
<INTEREST-LOAN> 2,835
<INTEREST-INVEST> 1,196
<INTEREST-OTHER> 167
<INTEREST-TOTAL> 4,198
<INTEREST-DEPOSIT> 1,607
<INTEREST-EXPENSE> 1,714
<INTEREST-INCOME-NET> 2,484
<LOAN-LOSSES> 79
<SECURITIES-GAINS> (1)
<EXPENSE-OTHER> 2,329
<INCOME-PRETAX> 626
<INCOME-PRE-EXTRAORDINARY> 626
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 550
<EPS-BASIC> 0.97
<EPS-DILUTED> 0.96
<YIELD-ACTUAL> 4.89
<LOANS-NON> 127
<LOANS-PAST> 149
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 340
<CHARGE-OFFS> 58
<RECOVERIES> 14
<ALLOWANCE-CLOSE> 375
<ALLOWANCE-DOMESTIC> 375
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 94
</TABLE>
TRI-STATE 1ST BANK, INC.
P. O. BOX 796
EAST LIVERPOOL, OHIO, 43920
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 19, 2000, AT THE OFFICES OF
1ST NATIONAL COMMUNITY BANK
16924 ST. CLAIR AVENUE
EAST LIVERPOOL, OHIO
Dear Tri-State 1st Bank, Inc. Shareholder:
You are cordially invited to attend the 2000 Annual Meeting of the
Shareholders of Tri-State 1st Bank, Inc., an Ohio corporation ("1st Bank"), on
Wednesday, April 19, 2000. The meeting will be held at the executive offices
of 1st National Community Bank at 16924 St. Clair Avenue, East Liverpool,
Ohio, at 7:00 P.M. 1st National Community Bank ("1st National") is a wholly-
owned subsidiary of 1st Bank. Whether or not you will attend the Annual
Meeting of the Shareholders, I urge you to immediately sign and return the
enclosed Proxy in the envelope provided casting your vote on these important
issues.
You are being asked to consider and vote on the following proposals:
1. To set the number of Class 1 Directors to be elected at three (3)
members of the Board of Directors and to elect three (3) Class 1
Directors each for a term of three (3) years to serve until the year
2003 A.D., or until the next meeting of Shareholders called for the
purpose of electing Class 1 Directors. All three (3) of the current
Class 1 Directors have been nominated for reelection.
2. To ratify the appointment of S. R. Snodgrass, A.C., as the
independent certified public accountants for 1st Bank in 2000.
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The close of business on March 10, 2000, has been fixed as the record
date for the determination of Shareholders entitled to notice of and to vote
at the Annual Meeting or any adjournment thereof.
By Order of the Board of Directors
St. Clair Township, Ohio
March 20, 2000
Keith R. Clutter
Secretary
YOUR VOTE IS IMPORTANT
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY SO THAT YOUR SHARES
WILL BE REPRESENTED AT THE MEETING. IF YOU CHOOSE TO ATTEND THE MEETING, YOU
MAY REVOKE YOUR PROXY AND PERSONALLY CAST YOUR VOTES.
<PAGE>
TRI-STATE 1st BANK, INC.
P. O. BOX 796
EAST LIVERPOOL, OHIO, 43920
2000 ANNUAL MEETING
PROXY STATEMENT
PROXIES, SOLICITATION AND VOTING
This Proxy Statement is furnished to the shareholders ("Shareholders") of
Tri-State 1st Bank, Inc. ("1st Bank") in connection with the solicitation by the
1st Bank management, by order of the Board of Directors, of proxies
("Proxies") for use at the Annual Meeting of Shareholders to be held on April
19, 2000, and at any adjournment thereof, for the purposes set forth in the
accompanying Notice of Annual Meeting of Shareholders.
The enclosed Proxy is for use at the Annual Meeting if a Shareholder is unable
to attend the Annual Meeting in person or wishes to have his shares of common
stock, no par value, of 1st Bank (the "Common Stock") voted by Proxy even if
he attends the Annual Meeting. The Proxy may be revoked by the person giving
it at any time before it is exercised, by notice to the Secretary of 1st Bank,
by executing and delivering a Proxy having a later date, or by such persons
appearing at the Annual Meeting and electing to vote in person. All shares of
Common Stock of 1st Bank represented by valid Proxies received pursuant to
this solicitation, and not revoked before they are exercised, will be voted at
the Annual Meeting. The execution of a Proxy will in no way affect a
Shareholder's right to attend the Annual Meeting and vote in person.
The election of Class 1 Directors and the appointment of S. R. Snodgrass A.C.
as the Company's auditors, both require the affirmative vote of a majority of
votes cast, at a meeting at which the holders of a majority of the outstanding
Common Stock are present in person or by proxy. Abstentions and broker
non-votes will be included in determining the number of shares present at the
Annual Meeting of Shareholders but will not be included in determining the
number of votes cast and as a result will not be considered in determining the
outcome of the vote.
Holders of Common Stock of record at the close of business on March 10, 2000,
(the "Record Date") will be entitled to vote at the Annual Meeting and at any
adjournment thereof. At the close of business on the Record Date, 1st Bank
had issued and outstanding 647,009 shares of Common Stock. In the election of
Class 1 Directors, and in deciding all other questions presented at the Annual
Meeting of Shareholders, each Shareholder will be entitled to one vote for
each share of Common Stock held.
2
<PAGE>
The cost of soliciting Proxies will be borne by 1st Bank. In addition to the
use of the mails, Proxies may be solicited by personal contact or telephone.
If applicable, banks, brokers, nominees and fiduciaries will be required to
forward the soliciting material to the
principals and obtain authorization for the execution of Proxies. 1st Bank
will, upon request, reimburse banks, brokers and other institutions, nominees
and fiduciaries for their expenses in forwarding Proxy material to the
principals.
ELECTION OF DIRECTORS [PROPOSAL NO. 1]
The persons named in the accompanying Proxy will vote for the election of the
nominees named below as Class 1 Directors, unless otherwise directed by the
Shareholders giving Proxies. All nominees are now Class 1 Directors and all
have consented to be named and to serve if elected. The Bylaws of 1st Bank
provide that the number of Directors to be elected at the Annual Meeting of
the Shareholders will be determined by resolution of the Board of Directors or
the Shareholders. The number of Directors has been fixed at nine, divided
into three equal Classes of three: Class 1, Class 2 and Class 3. The current
term of the Class 1 Directors expires at the Annual Meeting and three Class 1
Directors are to be elected at the Annual Meeting, each for a three year term.
Provided a quorum is present, Class 1 Directors will be elected by the
affirmative vote of not less than a majority of all shares present in person
or represented by Proxy at the Annual Meeting. At each meeting of
Shareholders for the election of Directors at which a quorum is present, the
persons receiving the greatest number of votes shall be deemed elected
Directors. Any Shareholder may cumulate his votes at an election of Directors
upon fulfillment of the conditions prescribed in Section 1701.55 of the Ohio
Revised Code, or any similar statute which may hereafter be enacted. Such
Section generally requires that a Shareholder desiring to cumulate voting give
advance notice in writing at least 48 hours before the Annual Meeting of his
or her desire that the voting at the Annual Meeting be cumulative and that
announcement of the giving of such notice be at the commencement of the Annual
Meeting. Upon fulfillment of these notice requirements, each Shareholder has
the right to cumulate the voting power he or she possesses and to give one
candidate as many votes as the number of Directors to be elected multiplied by
the number his or her votes equals, or to distribute his or her votes on the
same principle among two or more candidates as he or she sees fit.
The Proxy solicited hereby cannot be voted for the election of a person to
fill a directorship for which no nomination has been duly made.
Nominations for election to the Board of Directors may be made by any
Shareholder entitled to vote for the election of Directors. Any such
nomination shall contain the following information: (I) the name and address
of the proposed nominee; (ii) the principal occupation of the nominee; (iii)
the total number of shares of Common Stock that to the knowledge of the
nominating Shareholder will be voted for the proposed nominee; (iv) the name
and residential address of each nominating Shareholder; (v) the number of
shares of Common Stock owned by the nominating Shareholder; (vi) the total
number of shares of Common Stock that to the knowledge of the nominating
Shareholder
3
<PAGE>
are owned by the proposed nominee; and (vii) the signed consent of the
proposed nominee to serve on the Board, if elected. Such nomination shall be
delivered to the Secretary of 1st Bank not later than the opening of business
at the Annual Meeting.
Nominations not made in accordance herewith may be disregarded by the
chairperson of the meeting, and upon the chairperson's instructions the vote
tellers may disregard all votes cast for each such nominee. If, at the time of
the Annual Meeting of Shareholders, any of the nominees named in the Proxy
Statement should be unable or decline to serve as a Class 1 Director, the
Proxies are authorized to be voted for such substitute nominee or nominees as
the Board of Directors recommends. The Board of Directors has no reason to
believe that any nominee will be unable or decline to serve as a Class 1
Director.
Set forth below are the names of the nominees for election to the Board of
Directors as Class 1 Directors and certain information furnished by such
nominees to 1st Bank concerning themselves. The persons named below will be
nominated for election to serve until the 2003 A.D. Annual Meeting of the
Shareholders. It is the intention of the persons named in the Proxy to vote
"For" the resolution establishing the number of Class 1 Directors at three (3)
persons and to vote "For" the election of these three (3) nominees.
Recommendation
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
PROPOSAL. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED IN FAVOR
OF THIS PROPOSAL UNLESS A CONTRARY VOTE OR ABSTENTION IS SPECIFIED.
NOMINEES FOR THE CLASS 1 DIRECTORS
Position and Offices Present and Principal
Held at 1st Bank Director Occupation for last
Name Age and Subsidiaries Since five years
- ---- --- -------------------- -------- --------------------
William E. Blair, Jr. 64 Director 1st Bank; President of Bill
1st National; Director Blair Inc.(oil and
and VP-Gateminder 1991 gas exploration)
Stephen W. Cooper 56 Director 1st Bank; President of Cooper
1st National 1989 Insurance Agency
(general insurance)
Marvin H. Feldman 54 Director 1st Bank; Partner in The
1st National 1987 Feldman Agency
(life insurance)
4
<PAGE>
IDENTIFICATION OF OTHER DIRECTORS AND EXECUTIVE OFFICERS
The following persons are (I) current Directors of 1st Bank who are serving
as either Class 2 Directors, whose terms expire in 2001, or Class 3 Directors,
whose terms expire in 2002, and/or (ii) executive officers of 1st National.
Position and Offices Present and Principal
Held at 1st Bank Director Occupation for last
Name Age and Subsidiaries Since five years
- ---- --- -------------------- -------- -------------------
CLASS 2 DIRECTORS
Keith R. Clutter 56 Director-Secretary of Secretary of 1st
1st Bank; President of Bank; President 1st
1st National; Secretary National (banking)
and Treasurer
Gateminder 1987
G. Allen Dickey 69 Director 1st Bank; Chairman of D. W.
1st National 1987 Dickey & Son, Inc.
(construction
materials)
John P. Scotford, Sr. 71 Director 1st Bank; Chairman, McBarscot
1st National 1987 Company
(automobile dealer)
CLASS 3 DIRECTORS
Charles B. Lang 60 Director-President of President of 1st
1st Bank; Chairman and Bank; Chairman &
CEO
CEO of 1st National: of 1st National
President of (banking)
Gateminder 1987
R. Lynn Leggett 52 Director 1st Bank; Funeral Director,
1st National 1996 Eells-Leggett
Funeral Home
(funeral services)
John C. Thompson 73 Director 1st Bank; Chairman of The
1st National 1987 Hall China Company
(pottery
manufacturing)
5
<PAGE>
OTHER EXECUTIVE OFFICERS
Position and Offices Present and Principal
Held at 1st Bank Occupation for last
Name Age and Subsidiaries five years
- ---- --- -------------------- ---------------------
Kevin Anglemyer 35 Chief Financial Officer; Chief Financial
1st Bank, 1st National, Officer since 1998;
Gateminder; CPA over 10 years of
banking experience
Roger D. Sanford 51 Vice President of Vice President and Branch
1st National Branch Administrator of 1st
National since 1999; Vice
President & Branch Manager
since 1992; over 28 years
of banking experience
R. Keith Broadbent 56 Vice President of Vice President of 1st
1st National National since 1996; Loan
Officer of 1st National
since 1995; over 31 years of
banking experience
Steven A. Mabbot 43 Vice President of Vice President & Loan
1st National Department Manager of 1st
National since 1994; over 12
years of banking experience
Vickie L. Owens 38 Vice President of Vice President & Supervisor
1st National of Data Processing of 1st
National since 1991; over 21
years of banking experience
Lester W. Smith 70 Vice President of Vice President of
1st National Pennsylvania Operations of
1st National since 1999;
over 40 years of experience
in financial field
Joseph M. 35 Assistant Vice President Assistant Vice President &
Schmalstieg of 1st National Business Development of 1st
National since 1998; over 5
years of banking experience
6
<PAGE>
Position and Offices Present and Principal
Held at 1st Bank Occupation for last
Name Age and Subsidiaries five years
- ---- --- -------------------- ---------------------
Judy A. Mouse 32 Assistant Cashier of Assistant Cashier &
1st National Supervisor; 1st National
since 1998; over 11 years of
banking experience
BOARD OF DIRECTOR AND COMMITTEE MEETINGS
During 1999, the Board of Directors of 1st Bank held 5 regular meetings of
the Board. 1st Bank has no standing audit, nominating, compensation or other
committees of the Board of Directors. All of 1st Bank's Directors attended at
least 75% of its Board meetings except Director John P. Scotford, Sr. who
attended two of the five meetings. The Directors of 1st Bank also
constitute the entire Board of Directors of 1st National Community Bank, a
wholly-owned subsidiary of 1st Bank. There were 12 meetings of the Board of
Directors of 1st National. All of 1st National's Directors attended at least
75% of its Board meetings except Director John P. Scotford, Sr. who attended
25% of the meetings, and Director William E. Blair who attended 67% of the
meetings. Director Scotford travels extensively and lives at a Florida
residence for a good portion of each year and Director Blair missed all
meetings in the first quarter of 1999 due to illness.
EXECUTIVE COMPENSATION
The following table reflects the compensation paid by 1st National during
1999, 1998 and 1997 for services in all capacities by the Chairman & CEO. No
employee received an annual salary and bonus in excess of $100,000. More
specific information regarding compensation is provided in the notes
accompanying the tables.
Summary Compensation Table
Annual Compensation
Salary Bonus
(A) (A)
Name and Position Year ($) ($)
----------------------------------------------------------------
Charles B. Lang 1999 $71,760 $1,528
Chairman & CEO 1998 64,972 3,428
1997 62,800 1,256
(A) Amounts shown include all cash compensation earned and received by the
named executive officer.
7
<PAGE>
OPTIONS/SAR GRANTS/INCENTIVE PLANS
1st Bank does have in place a stock option plan which was approved by the
Shareholders at their annual meeting on March 19, 1997. A committee was
chosen by the Board of Directors of 1st National comprised of Directors but
not including any executive officers of either 1st Bank or 1st National for
the purpose of awarding options to purchase Common Stock of 1st Bank to
deserving officers and Directors for the year 1999. Under the Plan, there
are 68,750 shares of 1st Bank stock eligible for distribution under the stock
option plan.
Effective August 25, 1999, 13,600 share options were granted to 14 officers
and Directors of 1st National at an exercise price of $26.40 per share for a
term of ten (10) years to expire in ten years on August 24, 2009 A.D. The
Fair Market Value per share on August 25, 1999, was $26.40 per share. A
total of 7,650 Incentive Stock Options were granted to 7 key officers and
5,950 Non-Qualified Stock Options were granted to 7 Directors.
The following table describes the individual stock options granted to the
Chief Executive Officer of 1st Bank and 1st National during the year 1999:
Option/SAR Grants in Last Fiscal Year
Individual Grants to Executive Officers
- --------------------------------------------------------------------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees Exercise or Base
Name Granted (#) in fiscal year Price ($/Sh) Expiration Date
- --------------------------------------------------------------------------------
Charles B. Lang 2,750 36% $26.40 8/24/2009
The following table describes each exercise of stock options and SARs during
the year 1999 by the named executive officer of 1st National and 1st Bank:
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
- --------------------------------------------------------------------------------
Number of Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End (#) at FY-End (#)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized Unexercisable Unexercisable
- --------------------------------------------------------------------------------
Charles B. Lang None $0 12,250/0 $84,550/$0
There are no other stock option or stock appreciation rights plans, nor are
there any long - term incentive plans for employees of 1st Bank or 1st National.
8
<PAGE>
COMPENSATION OF DIRECTORS
For the year 1999, no compensation was paid to any Directors of 1st Bank for
their services to the holding company. No compensation was paid to Directors
Lang and Clutter as Directors of 1st National, who are compensated in their
capacity as officers of 1st National. Compensation paid to each of the
remaining seven outside Directors of 1st National was as follows: an annual
retainer of $2,200; $230 for each of the 12 Board meetings attended; and $230
for each Executive Committee attended (three outside Directors are assigned
to each of the monthly Executive Committee meetings). $175 was paid to the
three members of the Audit Committee for each of the two meetings attended,
and also to the four non-officer Director members of the Future Directions
and New Office Expansion Committee for the two meetings held provided that
they had attended.
EMPLOYMENT ARRANGEMENTS
1st Bank has not entered into any employment contracts with any of its
executive officers, nor is there any arrangement, plan or agreement in effect
between 1st Bank and any executive officer providing for compensation to be
paid in the event of the resignation, retirement or termination of any such
officer or in the event of a change in control of 1st Bank.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
As of March 10, 2000, there were 647,009 shares of Common Stock issued and
outstanding and 52,382 stock options to purchase unissued shares of which all
stock options are owned by current Directors and officers of 1st National.
The following table sets forth information as of March 10, 2000, with respect to
beneficial ownership of 1st Bank's Common Stock by: (I) all persons known to
1st Bank to be considered to own beneficially more than five (5%) percent of
its voting securities; (ii) all Directors and Director nominees of 1st Bank;
and (iii) all of 1st Bank's officers and Directors as a group. Unless
otherwise stated, each person so named exercises or would exercise sole
voting power and investment power as to the shares of Common Stock so indicated.
Amount and
Nature of
Name and Address Beneficial
of Beneficial Owner Ownership(1) Percentage of Class
- ------------------------------------------------------------------------------
William E. Blair, Jr. 7,475(2) 1.07%
13004 Woodworth Road
New Springfield, OH 44443
Keith R. Clutter 6,700(3) *
2642 Carter Street
East Liverpool, OH 43920
9
<PAGE>
Amount and
Nature of
Name and Address Beneficial
of Beneficial Owner Ownership(1) Percentage of Class
- ------------------------------------------------------------------------------
Stephen W. Cooper 4,135 (4) *
933 Park Boulevard
East Liverpool, OH 43920
G. Allen Dickey 23,949 (5) 3.42%
6938 State Route 45
Lisbon, OH 44432
Marvin H. Feldman 31,684 (6) 4.53%
932 Midway Lane
East Liverpool, OH 43920
Charles B. Lang 64,138 (7) 9.17%
R. D. #1, Box 255
Chester, WV 26034
R. Lynn Leggett 6,812 (8) *
425 Chestnut Street
Lisbon, OH 44432
John P. Scotford 52,219 (9) 7.47%
7316 Christopher Drive
Poland, OH 44514
John C. Thompson 13,559 (10) 1.94%
913 Park Boulevard
East Liverpool, OH 43920
Kevin Anglemyer 1,675 (11) *
126 Ambrose Drive
Clinton, PA, 15026
R. Keith Broadbent 1,375 (12) *
1321 Riverview Street
East Liverpool, OH 43920
Roger D. Sanford 3,819 (13) *
50621 Stagecoach Road
East Liverpool, OH 43920
Steven A. Mabbott 2,100 (14) *
15792 Highland Drive
East Liverpool, OH, 43920
Lester W. Smith 500 (15) *
101 Murray Drive
Beaver, PA, 15009
All Directors and Executive Officers as a group
220,140 31.48%
10
<PAGE>
* Indicates that the percentage of shares beneficially owned does not
exceed 1% of the class.
(1) For the purposes of this table, shares are considered "beneficially"
owned If the person directly or indirectly has the sole or shared power
to vote or direct the voting of the securities or the sole or shared
power to dispose of or direct the disposition of the securities. A
person is also considered to beneficially own shares that such person
has the right to acquire within 60 days. In computing the percentage
of ownership for each nominee, director and principal officer and the
group, the shares covered by exercisable stock options held by such
nominee, director, principal officer and group are deemed outstanding.
In calculating the percentage of class owned, the total number of
shares issued and outstanding have been increased to reflect the
number of shares that would be outstanding.
(2) Includes 1,500 shares owned of record, 2,500 shares owned in the name of
his spouse and 3,475 stock options.
(3) Includes 550 shares owned of record and 6,150 stock options.
(4) Includes 660 shares owned of record and 3,475 stock options.
(5) Includes 660 shares owned of record, 19,470 shares owned in trust and in
the name of his spouse and 3,819 stock options.
(6) Includes 550 shares owned of record, 27,315 shares owned jointly with
his spouse, in the name of his spouse, in the name of his spouse in
Trust and held in corporate name, and 3,819 stock options.
(7) Includes 15,060 shares owned of record, 36,828 shares held in Trust, an
IRA custodial account and as Co-Trustee of the Francis H. Lang Trust,
and 12,250 stock options.
(8) Includes 310 shares owned of record, 3,714 shares owned jointly with his
spouse in broker accounts and 2,788 stock options.
(9) Includes 550 shares owned of record, 47,850 shares held in Trust from
himself and in Trust in the name of his spouse and 3,819 stock options.
(10) Includes 9,740 shares owned of record and 3,819 stock options.
(11) Includes 150 shares owned of record, 50 shares in a IRA custodial
account and 1,475 stock options.
(12) All 300 shares are owned jointly with another person and 1,075 stock
options.
(13) All 3,819 shares are by stock option.
(14) All 2,100 shares are by stock option.
(15) All 500 shares are by stock option.
11
<PAGE>
SECTION 16 (A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the federal securities laws, 1st Bank Directors, officers and persons
holding more than ten percent (10%) of 1st Bank's stock are required to
report, within specified monthly and annual due dates, their initial ownership
of Common Stock and all subsequent acquisitions, dispositions or other
transfers of beneficial interests therein, if and to the extent reportable
events occur which require reporting by such due dates. 1st Bank is required
to describe in this Proxy Statement whether, to its knowledge, any person
required to file such a report may have failed to do so in a timely manner.
1st Bank is not aware of any untimely filing.
RATIFICATION OF S. R. SNODGRASS, A.C. [PROPOSAL NO. 2]
The Board of Directors of 1st Bank has appointed S. R. Snodgrass as
independent auditors to examine the financial statements of 1st Bank and its
subsidiaries for the fiscal year ending December 31, 2000, and have directed
that such appointment be submitted for ratification by the Shareholders at the
Annual Meeting.
The affirmative vote of the majority of the shares represented at the Annual
Meeting and entitled to vote is required for ratification. Management
recommends that the appointment of S. R. Snodgrass be ratified by
Shareholders.
Representatives of S. R. Snodgrass are expected to be present at the Annual
Meeting. S. R. Snodgrass has represented 1st Bank since its formation and has
represented 1st National since its charter was granted in 1987 and has served
the Board of Directors in that capacity for nearly 13 years.
RECOMMENDATION
The Board of Directors recommends that the Shareholders vote "For" the
proposal. Proxies solicited by the Board of Directors will be voted in favor
of this proposal unless a contrary vote or abstention is specified.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since the beginning of the 1st Bank's 1999 fiscal year, 1st Bank has been a
party to the transactions described as follows with certain of its Directors,
officers or Shareholders owning more than 5% of the 1st Bank Common Stock or
business controlled by such persons or any member of the immediate family of
any of such persons:
William E. Blair, Jr., a Director of 1st Bank, has obtained two lines of
credit and one demand note from 1st National in the maximum aggregate
principal amount of $370,000.
12
<PAGE>
The balance outstanding at March 10, 2000, was $161,521. The rate of interest
on the outstanding balance is the New York Prime rate (currently 8.75%) plus
1%.
Keith R. Clutter, a Director of 1st Bank, has obtained an overdraft line of
credit in the principal amount of $1,000 from 1st National. The balance
outstanding at March 10, 2000, was $1,000. The rate of interest on the
outstanding balance is 16%. He had co-signed a loan for a member of his
immediate family in the original amount of $5,203. The rate of interest is
13% on an outstanding balance on March 10, 2000 of $3,789.
Stephen W. Cooper, a Director of 1st Bank, has obtained a term loan and a line
of credit in the aggregate principal amount of $124,697 from 1st National.
The aggregate balance outstanding at March 10, 2000, was $116,719. The rates
of interest on the loans are New York Prime rate plus 1 1/2% respectively.
G. Allen Dickey, a Director of 1st Bank, has obtained a line of credit and an
overdraft line of credit in the aggregate principal amount of $125,000 from
1st National. The aggregate balance outstanding at March 10, 2000, was $0.
The rates of interest on the lines of credit are New York Prime rate plus 1%
and 16% respectively.
Marvin H. Feldman, a Director of 1st Bank, has obtained a line of credit in
the original principal amount of $300,000 and a member of his immediate family
has obtained a loan in the original principal amount of $22,036 from 1st
National. The aggregate balance outstanding at March 10, 2000, was $319,149.
The rates of interest on the loans are National Prime (currently 8.75%) plus
1% and 9% respectively.
Charles B. Lang, a Director and officer of 1st Bank, has obtained a real
estate mortgage and an installment loan in the aggregate original principal
amount of $76,521 from 1st National. The aggregate balance outstanding on
March 10, 2000, was $67,917. The rates of interest on the loans are 8% and
8.5% respectively. He has also obtained an overdraft line of credit in the
principal amount of $1,000 at a rate of 16% at 1st National and the
outstanding balance on March 10, 2000 was $0. He has also guaranteed to the
extent of $13,500 a portion of a mortgage loan for a member of his immediate
family in the original amount of $68,000 at a one-year adjustable rate of 8%
with a balance on March 10, 2000 of $68,000.
R. Lynn Leggett, a Director of 1st Bank, has obtained a term loan in the
original principal amount of $18,446 from 1st National. The aggregate balance
outstanding on March 10, 2000, was $11,297. The rate of interest on the term
loan is 7.5%
OTHER MATTERS TO COME BEFORE THE MEETING [PROPOSAL NO. 3]
No other matters are intended to be brought before the Annual Meeting by 1st
Bank, nor does 1st Bank know of any other matters to be brought before the
Annual Meeting by others. If other matters properly come before the meeting,
the persons named in the
13
<PAGE>
Proxy will vote the shares represented therein in accordance with the judgment
of management on any such matters.
SHAREHOLDER PROPOSALS
Shareholders who desire to submit proposals at 1st Bank's 2001 Annual Meeting
of Shareholders must submit such proposals so that they are received by 1st
Bank no later than October 30, 2000, in order to be considered for inclusion
in 1st Bank's 2001 Proxy materials. Such shareholder proposals as well as any
questions relating thereto, should be submitted to Tri-State 1st Bank, Inc.,
16924 St. Clair Avenue, P. O. Box 796, East Liverpool, Ohio 43920, Attn.:
Secretary.
GENERAL
UPON WRITTEN REQUEST TO 1ST BANK BY ANY SHAREHOLDER WHOSE PROXY IS SOLICITED
HEREBY, 1ST BANK WILL FURNISH A COPY OF ITS ANNUAL REPORT ON FORM 10-K FOR THE
YEAR ENDED DECEMBER 31, 1999, AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, TOGETHER WITH FINANCIAL STATEMENTS AND SCHEDULES THERETO, WITHOUT
CHARGE TO THE SHAREHOLDER REQUESTING THE SAME. REQUESTS SHOULD BE DIRECTED TO
THE ATTENTION OF KEITH R. CLUTTER, SECRETARY, AT P. O. Box 796, EAST
LIVERPOOL, OHIO 43920.
By Order of the Board of Directors
/s/ Keith R. Clutter
Keith R. Clutter,
Secretary
<PAGE>
PROXY
TRI-STATE 1ST BANK, INC.
P. O. Box 796
East Liverpool, Ohio 43920
PLEASE CHECK THE APPROPRIATE SPACES BELOW
The undersigned hereby appoints Hazel C. Schreckengost and Nancy Thompson
Cope, and each of them, each with the power to appoint her substitute, to
represent the undersigned and to vote all of the shares of Common Stock in
Tri-State 1st Bank, Inc. ("1st Bank") held of record by the undersigned at
the close of business on March 10, 2000, at the Annual Meeting of
Shareholders of 1st Bank to be held at the main office of 1st National
Community Bank, 16924 St. Clair Avenue, East Liverpool, Ohio, on Wednesday,
April 19, 2000, at 7:00 P.M., and at any adjournment thereof.
A vote FOR the following proposals is recommended by the Board of Directors:
The shares represented hereby shall be voted as specified. If no
specification is made, such shares shall be voted FOR proposals 1, 2 and 3.
WHETHER OR NOT YOU ARE ABLE TO ATTEND THE MEETING, YOU ARE URGED TO SIGN
- ------------------------------------------------------------------------
AND MAIL THE PROXY IN THE RETURN ENVELOPE PROVIDED SO THAT YOUR STOCK MAY BE
- ----------------------------------------------------------------------------
REPRESENTED AT THE MEETING.
- ---------------------------
Please check here if you are planning on attending this meeting.
- -------
1. ELECTION OF DIRECTORS
Election of the three (3) nominees listed below as members of 1st Bank's
Board of Directors as Class 1 Directors.
William E. Blair, Jr. FOR AGAINST ABSTAIN
----- ----- -----
Stephen W. Cooper FOR AGAINST ABSTAIN
----- ----- -----
Marvin H. Feldman FOR AGAINST ABSTAIN
----- ----- -----
2. TO RATIFY the selection by the Board of Directors of S. R. Snodgrass,
A.C., as 1st Bank's independent public auditors for the 2000 fiscal year.
FOR AGAINST ABSTAIN
----- ----- -----
3. Transaction of such other business as may properly come before the
meeting or any postponement or adjournments thereof.
FOR AGAINST ABSTAIN
----- ----- -----
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF 1ST BANK
Signature (s):
- --------------------------------------- ------------------------------------
Total number of shares
- ----------------------------------------- -----------
(Please print or type name [s])
NOTE: Sign exactly as your name(s) appear on your stock certificate. If
shares of stock are held of record in the names of two or more persons or in
the name of husband and wife, whether as joint tenants or otherwise, both or
all such persons should sign. If shares of stock are held of record by a
corporation, the Proxy should be executed by the President or other authorized
officer, and the corporate seal should be affixed thereto. If shares of stock
are held of record by a partnership, the Proxy should be executed in
partnership name by an authorized person. Executors or administrators or
other fiduciaries who execute the Proxy for a deceased shareholder should give
their full title. Please date the Proxy.
