SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 10 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended: June 30, 1996
Commission file number: 0-22220
TRI-COUNTY BANCORP, INC.
- -----------------------------------------------------------------
(Exact name of registrant as specified in its charter.)
Wyoming 83-0304855
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2201 Main Street, Torrington, Wyoming 82240
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(Address of principal executive offices) (Zip Code)
(307)532-2111
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 10 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the reeeegistrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes[X] No[ ]
Indicate the number of shares outstanding of each of issuer's
classes of common stock, as of the latest practical date:
Common Stock, $.10 par value - 608,749 shares as of August 1,
1996.
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Financial
Condition as of June 30, 1996 (unaudited)
and December 31, 1995
Condensed Consolidated Statements of Operations
for the Three Months and Six Months Ended June 30, 1996
and 1995 (unaudited)
Condensed Consolidated Statements of Stockholder's
Equity for the Six Months Ended June 30, 1996
(unaudited)
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1996 and 1995
(unaudited)
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis or Plan of
Operation
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Default Upon Senior Securities
Item 4. Submissions of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
<TABLE>
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
ASSETS June 30, Dec 31,
1996 1995
______________ _____________
<S> <C> <C>
Cash $ 618,041 $ 350,964
Interest earning deposits at other
financial institions 668,764 557,768
Securities
Available-for-sale at fair val 29,129,988 19,256,695
Held-to-maturity, market value
of $13,431,924(1996) and
$18,583,902(1995) 13,287,199 18,263,560
Loans receivable, net 31,168,205 25,513,700
Loans held for resale 184,570 84,929
Office property and equipment, net 936,484 961,627
Prepaid expenses and other assets 724,663 776,842
______________ ______________
Total Assets $76,717,914 $65,766,085
============== ==============
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (cont.)
<CAPTION>
LIABILITIES AND STOCKHOLDER'S June 30, Dec 31,
EQUITY 1996 1995
______________ _____________
<S> <C> <C>
Demand deposits $ 351,879 $ 95,320
Savings and NOW deposits 11,543,517 11,052,595
Time deposits 33,558,895 33,435,384
______________ ______________
Total Deposits 45,454,291 44,583,299
Advances from FHLB 18,449,617 7,000,000
Advances by borrowers for taxes
and insurance 125,774 116,371
Accounts payable and accrued expenses 188,296 144,077
Deferred income taxes 91,680 425,914
______________ ______________
Total Liabilities $64,309,658 $52,269,661
______________ ______________
Stockholders' Equity
Preferred stock, $.10 par value,
5,000,000 shares authorized,
none issued
Common stock, 10,000,000 shares
of $.10 par value authorized,
608,749 (1996) and 640,788 (1995)
shares issued and outstanding 74,750 74,750
Additional paid in capital 7,005,684 6,983,901
Retained earnings - substantially
restricted 8,308,020 8,125,865
Unearned compensation relating to
MSBP and ESOP (566,075) (627,900)
Unrealized gain/(loss) on
securities available-for-sale,
net of tax (368,809) 398,026
Treasury stock, 138,751 (1996) and
106,712 (1995) shares, at cost (2,045,314) (1,458,218)
______________ ______________
Total Stockholders' Equity 12,408,256 13,496,424
______________ ______________
Total Liabilities and
Stockholders' Equity $76,717,914 $65,766,085
============== ==============
</TABLE>
<TABLE>
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
<CAPTION> Three Months Ended
June 30,
1996 1995
______________ _____________
<S> <C> <C>
Interest Income
Loans $ 625,800 $ 520,510
Securities available-for-sale 465,087 305,283
Securities held-to-maturity 246,625 288,334
Other interest earning assets 4,776 51,381
______________ ______________
Total Interest Income 1,342,288 1,165,508
______________ ______________
Interest Expense
Deposits 520,716 522,767
Advances and other borrowings 210,235 66,210
______________ ______________
Total Interest Expense 730,951 588,977
______________ ______________
Net Interest Income 611,337 576,531
Provision for credit losses --- (188)
______________ ______________
Net Interest Income after
Provision for credit losses 611,337 576,719
______________ ______________
Non-interest Income
Gain on sale of loans 10,008 12,843
Gain (loss) on sale of available-
for-sale investments --- 508
Service charges on deposits 23,137 25,954
Other, net 8,413 9,270
______________ ______________
Total Non-interest Income 41,558 48,575
______________ ______________
Non-interest Expense
Compensation and benefits 180,726 187,238
Occupancy and Equipment 71,652 72,156
Federal insurance premium 25,553 26,097
Other, net 106,304 112,998
______________ ______________
Total Non-interest Expense 384,235 398,489
______________ ______________
Earnings Before Income Taxes 268,660 226,805
Income Taxes 84,100 70,114
______________ ______________
Net Earnings $ 184,560 $ 156,691
============== ==============
Earnings Per Common Share - Primary $ 0.30 $ 0.24
========= =========
Cash Div Pd Per Common Share $ 0.00 $ 0.00
========= =========
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
<CAPTION>
Six Months Ended June 30,
1996 1995
______________ _____________
<S> <C> <C>
Interest Income
Loans $ 1,203,820 $ 1,047,045
Securities available-for-sale 847,496 588,981
Securities held-to-maturity 527,820 567,832
Other interest earning assets 14,721 74,982
______________ ______________
Total Interest Income 2,593,857 2,278,840
______________ ______________
Interest Expense
Deposits 1,049,324 1,012,982
Advances and other borrowings 352,023 95,708
______________ ______________
Total Interest Expense 1,401,347 1,108,690
______________ ______________
Net Interest Income 1,192,510 1,170,150
Provision for credit losses --- 288
______________ ______________
Net Interest Income after
Provision for cr. losses 1,192,510 1,169,862
______________ ______________
Non-interest Income
Gain on sale of loans 17,088 18,027
Gain (loss) on sale of available-
for-sale investments (1,593) 508
Service charges on deposits 47,198 49,189
Other, net 14,510 16,649
______________ ______________
Total Non-interest Income 77,203 84,373
______________ ______________
Non-interest Expense
Compensation and benefits 353,637 359,150
Occupancy and Equipment 144,401 142,859
Federal insurance premium 51,243 52,194
Other, net 214,880 203,107
______________ ______________
Total Non-interest Expense 764,161 757,310
______________ ______________
Earnings Before Income Taxes 505,552 496,925
Income Taxes 163,200 152,300
______________ ______________
Net Earnings $ 342,352 $ 344,625
============== ==============
Earnings Per Common Share - Primary $ 0.55 $ 0.54
========= =========
Cash Div Per Common Share $ 0.25 $ 0.17
========= =========
</TABLE>
<TABLE>
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Six months Ended June 30, 1996
(unaudited)
<CAPTION>
Additional
Common Paid-in Retained
Stock Capital Earnings
_______________________________
<S> <C> <C> <C>
BALANCE-December 31, 1995 $74,750 $6,983,901 $8,125,865
Net earnings 342,352
Repayment of ESOP debt
Allocation of ESOP shares 21,783
Amortization of
deferred compensation
Change in unrealized loss
on securities available-
for-sale, net of tax
Dividends paid (160,197)
Purchase of Treasury Stock
_______________________________
BALANCE-June 30, 1996 $74,750 $7,005,684 $8,308,020
===============================
<CAPTION>
Unrealized
Gain/(Loss)
MSBP Securities
Unearned Available-
ESOP Comp. for-sale
_______________________________
<S> <C> <C> <C>
BALANCE-December 31, 1995 $(463,450) $(164,450) $398,026
Net earnings
Repayment of ESOP debt 29,900
Allocation of ESOP shares
Amortization of
deferred compensation 31,925
Change in unrealized loss
on securities available-
for-sale, net of tax (766,835)
Dividends paid
Purchase of Treasury Stock
_______________________________
BALANCE-June 30, 1996 $(433,550) $(132,525) $(368,809)
===============================
<CAPTION>
Treasury
Stock Total
_______________________________
<S> <C> <C>
BALANCE-December 31, 1995 $(1,458,218) $13,496,424
Net earnings 342,352
Repayment of ESOP debt 29,900
Allocation of ESOP shares 21,783
Amortization of
deferred compensation 31,925
Change in unrealized loss
on securities available-
for-sale, net of tax (766,835)
Dividends paid (160,197)
Purchase of Treasury Stock (587,096) (587,096)
_______________________________
BALANCE-June 30, 1996 $(2,045,314) $12,408,256
===============================
</TABLE>
<TABLE>
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
<CAPTION>
Six Months Ended
June 30,
1996 1995
___________ ____________
<S> <C> <C>
Net Cash Provided by Operations $ 352,904 $ 457,546
___________ ____________
Net Investing Activities
Net loan origination & principal pmts (164,004) 178,609
Purchase of loans (5,490,591) ---
Purchase of available-for-sale
securities (11,655,917) (5,833,981)
Principal payments rec'd on
available-for-sale securities 504,556 60,516
Sale of available-for-sale securities 200,000 4,891,269
Purchase of held-to-maturity
securities --- (993,059)
Principal payments rec'd on held-to-
maturity securities 4,974,589 1,094,894
Proceeds from sale of real estate owned 76,831 16,203
Investment in property, equipment, REO (32,913) (206,894)
___________ ____________
Net Cash Used by Investing
Investing Activities (11,587,449) (792,443)
___________ ____________
Financing Activities
Net change in deposits 870,992 (487,438)
Payments rec'd from ESOP 29,900 33,289
Net increase in advances from
borrowers for taxes/insurance escrows 9,403 105,676
FHLB borrowings 11,449,617 4,000,000
Treasury stock purchased (587,097) (433,195)
Cash dividends paid (160,197) (114,685)
___________ ____________
Net Cash Provided By
Financing Activities 11,612,618 3,103,647
___________ ____________
Net increase in Cash & Cash
Equivalents 378,073 2,768,750
Cash & Cash Equivalents - beginning 908,732 1,465,495
___________ ____________
Cash & Cash Equivalents - ending 1,286,805 $4,234,245
=========== ============
Supplemental Disclosures
Cash paid for Interest $1,360,307 $1,099,471
Cash paid for Income Taxes 143,600 90,000
</TABLE>
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(unaudited)
NOTE 1 - BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements include
the accounts of Tri-County Bancorp, Inc. (the "Company"), Tri-
County Federal Savings Bank (formerly Tri-County Federal Savings
and Loan Association) (the "Bank") and First Tri-County Services,
Inc. All significant intercompany balances and transactions have
been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial
statements were prepared in accordance with generally accepted
accounting principles for interim financial information and with
instructions for Form 10-QSB and Article 10 of Regulation S-X.
Accordingly, they do not include all information and disclosures
required by generally accepted accounting principles for complete
financial statements. The accompanying consolidated financial
statements do not purport to contain all the necessary financial
disclosures required by generally accepted accounting principles
that might otherwise be necessary in the circumstances and should
be read together with the 1995 consolidated financial statements
and notes thereto of Tri-County Bancorp, Inc. and Subsidiaries
included in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1995. However, all normal recurring
adjustments have been made which, in the opinion of management,
are necessary to the fair presentation of the financial
statements.
The results of operations for the three and six month periods
ended June 30, 1996 are not necessarily indicative of the
results which may be expected for the year ending December 31,
1996 or any other period.
See Notes 2, 3 and 4.
NOTE 2 - EARNINGS PER SHARE
Earnings per share for the three months and six months ended June
30, 1996 and 1995, are computed on a primary basis. Primary
earnings per share is computed using the weighted average number
of common shares outstanding, net of unallocated ESOP shares and
the potentially dilutive effect of stock options. See Exhibit
11.
NOTE 3 - INVESTMENTS
Effective January 1, 1994, the Company adopted SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities.
In accordance with SFAS No. 115, the Company classified its
investment securities and mortgage-backed securities as either
"held-to-maturity," "available-for-sale," or "trading."
Management has determined that all applicable securities are
either "held-to-maturity" or "available-for-sale."
Investment and mortgage-backed securities designated as held-to-
maturity are stated at cost adjusted for amortization of the
related premiums and accretion of discounts, computed using the
level yield method. The Company has the positive intent and
ability to hold these securities to maturity.
Investment and mortgage-backed securities designated as
available-for-sale are stated at estimated market value.
Unrealized gains and losses are aggregated and reported as a
separate component of equity capital, net of deferred taxes.
These securities are acquired with the intent to hold them to
maturity, but they are available for disposal in the event of
unforeseen liquidity needs.
NOTE 4 - FDIC INSURANCE ASSESSMENT
Congress is currently considering legislation to resolve
financial problems of the Savings Association Insurance Fund
(SAIF). Proposed legislation would require a one-time special
assessment based on assessable deposits at March 31, 1995. The
actual payment date will be set by the Federal Deposit Insurance
Corporation (FDIC), but will be no later than sixty days after
enactment of the legislation. The legislation is designed to
recapitalize SAIF and assist in the merger of SAIF and the Bank
Insurance Fund (BIF). Based on current proposed legislation, the
Bank's one-time assessment is estimated at $249,305.
PART I - FINANCIAL INFORMATION
Item 2 - Management's Discussion & Analysis or Plan of Operation
GENERAL
Tri-County Bancorp, Inc. (the "Company") was incorporated on June
15, 1993, and is the holding company of Tri-County Federal
Savings Bank (the "Bank"). On September 28, 1993, the Bank
completed its conversion from a mutual savings and loan
association to a stock form of ownership at which time the
Company issued 747,500 shares of Common Stock and utilized a
portion of the proceeds to acquire all of the issued shares of
the Bank.
The Company is headquartered in Torrington, Wyoming and its
principal business currently consists of the operation of its
wholly-owned subsidiary, Tri-County Federal Savings Bank. The
Bank's primary business is attracting retail deposits from the
general public and investing those deposits and other borrowed
funds in various loan products, including mortgage-backed and
mortgage-related securities, federal agency securities and other
investment securities.
The Company's results of operations are dependent primarily on
its net interest income, which is the difference between the
interest earned on its assets, primarily its loans and securities
portfolios, and its cost of funds, which consists of the interest
paid on its deposits and borrowings. The Company's net income
also is affected by its provision for loan losses as well as non-
interest income, compensation and benefits, occupancy expenses,
Federal deposit insurance premiums, other non-interest expenses,
and income tax expense. Other non-interest expenses consists of
real estate lending operations, legal expenses, accounting
services and other miscellaneous costs. The earnings of the
Company are significantly affected by general economic and
competitive conditions, particularly changes in market interest
rates, government policies and actions of regulatory authorities.
CHANGES IN FINANCIAL CONDITION
ASSETS
The total assets of the Bank increased by $10,951,829 or 16.65%
during the first half of 1996.
Securities available-for-sale increased by $9,873,293 during the
first six months of 1996. Beginning in the fourth quarter of
1994, the Bank began taking advantage of a relatively inexpensive
source of funding available through the Federal Home Loan Bank of
Seattle (FHLB) to purchase financial instruments with a slightly
higher yield than the rate charged by FHLB on the advances.
During the six months ended June 30, 1996, securities available-
for-sale totaling $8,155,917 were purchased with funds borrowed
from FHLB. Also, callable FHLB notes totaling $4,000,000 were
called by the agency. These securities had been classified held-
to-maturity and the Bank used $3,000,000 of the proceeds to
purchase similar securities which were classified available-for-
sale.
Securities held-to-maturity decreased by $4,976,361 during the
first half of 1996. As previously discussed, held-to-maturity
agency securities were called on January 25th, February 2nd and
February 20th, in the amounts of $1,000,000, $2,000,000 and
$1,000,000, respectively, and the proceeds were used to purchase
securities classified available-for-sale. The remaining decrease
was the result of the principal payments and prepayments on the
Bank's portfolio of mortgage-backed securities.
Loans receivable increased $5,654,505 or 22.16% during the first
six months of 1996. During this period, the Bank originated or
purchased for portfolio residential mortgage loans totaling
$5,297,886, non-residential mortgage loans totaling $2,099,716,
consumer loans totaling $917,374, a short-term commercial loan
in the amount of $500,000 and other commercial loans totaling
$249,158. By the end of the period, the Bank had received full
repayment of the short-term commercial loan and repayments
totaling $3,061,613 on other loans. Of the total residential and
non-residential mortgage loans originated in the first two
quarters, $4,306,556 were adjustable rate and $3,091,046 were
fixed rate mortgages. Purchased loans amounted to 60.6% of all
new loan activity during this period.
LIABILITIES
Deposit balances increased by $870,996 during the first six
months of 1996. The overall increase in deposit balances
consisted of increases in non-interest bearing demand deposits of
$256,559, savings and NOW deposits of $490,922, and time deposits
of $123,515.
Advances from FHLB increased by $11,499,617 during the first six
months of 1996. As previously discussed, advances totaling
$8,000,000 were obtained during the first six months of 1996
and used to purchase securities available-for-sale. The
advances have a term of approximately one year and were used to
purchase adjustable rate mortgage-backed securities and shares in
a mutual fund whose investments are mortgage-related
securities. The Bank was able to lock in a positive spread over
the initial term of the advances and will make a decision
whether to renew the advance and hold the securities or sell
the securities and payoff the advance on or near the maturity
date. The Bank also borrowed $950,000 from FHLB under the
Community Investment Program (CIP) which was used to fund a
mortgage loan for a commercial retail building located in
Wheatland, Wyoming. The CIP loan is a twenty year fixed rate
amortizing loan. The balance of the borrowings from FHLB were
for terms of less than one year and the proceeds were used to
fund the origination or purchase of portfolio mortgage loans.
The decrease of $334,234 in deferred income taxes was mainly the
result of the application of SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities, which requires
unrealized gains and losses on available-for-sale securities to
be reported, net of deferred income taxes, as a separate
component of stockholders' equity. The market value of these
securities decreased by $1,116,068 during the period which
resulted in a decrease in deferred income taxes.
STOCKHOLDERS' EQUITY
Additional paid in capital increased by $21,783 because of the
application of Statement of Position (SOP) 93-6, Employers'
Accounting for Employee Stock Ownership Plans, of the Accounting
Standards Division of the American Institute of Certified Public
Accountants, which requires charging expense for the fair value
of shares committed to be released by an Employee Stock Ownership
Plan and crediting the difference between the fair value and the
cost of the shares to paid in capital.
Retained earnings increased $182,155 as a result of net earnings
of $342,352 for the first six months of the year, less a dividend
of $0.25 per share paid in March which totaled $160,197.
As discussed earlier, SFAS No. 115 requires unrealized gains and
losses on securities classified available-for-sale to be shown as
a separate component of stockholders' equity in an amount which
is net of deferred income taxes. The market value of securities
classified as available-for-sale decreased during the first six
months of the year which resulted in a decrease of $766,835 in
stockholders' equity.
In March of 1996, the Bank received permission from the Office of
Thrift Supervision (OTS) to repurchase up to 32,039 shares (5%)
of its outstanding Common Stock in the open market. At June 30,
1996, the Bank had repurchased 32,039 shares at a total cost of
$587,096 or an average purchase price of $18.32 per share.
NON-PERFORMING ASSETS
Non-performing assets totaled $165,376 or 0.22% of total assets
at June 30, 1996 compared to $223,621 or 0.34% at December 31,
1995. The decrease in non-performing assets of $58,245 was
caused by the sale of real estate owned with a cost basis to the
Bank of $76,831 and an increase in the balance of non-accrual
loans of $28,586.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1996
INTEREST INCOME
Interest income from loans increased $105,290 during the second
quarter of 1996 when compared to the same period of 1995. The
increase was the result of an increase in the average balance of
loans outstanding during the period which was $5,700,345 higher
in 1996 than in 1995. The increase in the average balance of
loans more than offset a decrease in the average yield on the
portfolio from 8.31% to 8.15%.
The increase in interest income from securities available-for-
sale of $159,804 was the result of an increase of $9,076,456 in
the average balance of securities held during the second quarter
of 1996 when compared to the same period of 1995. An increase in
the average yield on the securities from 6.63% to 6.77% also
contributed to the increase. See also "Changes in Financial
Condition - Assets."
Interest income from held-to-maturity securities decreased by
$41,709 during the second quarter of 1996 when compared to the
same period of 1995. The decrease was the result of a $2,286,789
decrease in the average balance of the securities held which more
than offset the slight increase in the yield from 7.33% to 7.35%.
See also "Changes in Financial Condition - Assets."
The decrease in income from other interest-earning assets of
$46,605 was caused mainly by a decrease in the average balance
of these assets of $3,135,890. Also, the yield on other
interest-earning assets decrease from 5.78% to 5.10%. This
category of assets consists primarily of interest-earning
demand and time deposits held at FHLB.
INTEREST EXPENSE
Interest expense on deposits decreased by $2,051 during the
second quarter of 1996 when compared to the second quarter of
1995. The decrease in the cost of deposits was caused by a
slight decrease in the average rate paid on deposits. Maturing
time certificates renewed at rates which were somewhat lower, on
average, than the rates previously paid.
As previously discussed, beginning in the fourth quarter of 1994,
the Bank began taking advantage of a relatively inexpensive
source of funding available through FHLB to purchase financial
instruments that yield a slightly higher return than the rate
charged on the advances. The level of these borrowings increased
substantially during the last twelve months which resulted in an
increase of $144,025 in interest expense even though the average
rate on advances decreased from 5.66% to 5.15%.
PROVISION FOR CREDIT LOSSES
No provision for credit losses was made during the three months
ended June 30, 1996 due to management's assessment that
additions were not required.
NET INTEREST INCOME
Net interest income increased from $576,531 for the three month
period ended June 30, 1995 to $611,337 for the same period of
1996. This increase was due to an increase of $9,355,432
in the average balance of interest-earning assets while the
difference between the yield on interest-earning assets and the
cost of interest-bearing liabilities remained constant at 2.74%
for both periods.
NON-INTEREST INCOME
Non-interest income decreased $7,017 during the second quarter of
1996 when compared to the second quarter of 1995. Gain on the
sale of loans decreased $2,835 due to a decrease in the volume of
loans originated and sold. Service charges on deposits decreased
$2,817 primarily due to fewer overdraft charges being assessed
and collected. During the previous year, shares in a mutual fund
were redeemed at a gain of $508 whereas there were no gains in
the current year.
NON-INTEREST EXPENSE
Non-interest expense decreased $14,254 during the second quarter
of 1996 when compared to the same period of 1995. Compensation
and benefits expense decreased $6,512 due to a decrease in the
cost of the Bank's group medical plan and the payment in the
previous year of expenses related to a terminated defined benefit
pension plan. Other expenses decreased $6,694 and was the result
of additional advertising and promotion expenses incurred in the
previous year in conjunction with the completion of a substantial
remodeling project and a related open house. Occupancy and
equipment expense and federal insurance premiums remained at
approximately the same level during the two periods.
INCOME TAXES
The change in income tax is primarily the result of a change in
net earnings before taxes.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996
INTEREST INCOME
Interest income from loans increased $156,775 during the first
half of 1996 when compared to the same period of 1995. The
increase was the result of an increase in the average balance of
loans outstanding during the period which was $3,974,741 higher
in 1996 than in 1995. The increase in the average balance of
loans more than offset a slight decrease in the average yield on
the portfolio from 8.21% to 8.17%.
The increase in interest income from securities available-for-
sale of $258,515 was the result of an increase of $7,734,963 in
the average balance of securities held during the second half of
1996 when compared to the same period of 1995. A slight increase
in the average yield on the securities from 6.53% to 6.57% also
contributed to the increase. See also "Changes in Financial
Condition - Assets."
Interest income from held-to-maturity securities decreased by
$40,012 during the first six months of 1996 when compared to the
same period of 1995. The decrease was the result of a $1,523,852
decrease in the average balance of the securities held which more
than offset the increase in the yield from 7.20% to 7.44%. See
also "Changes in Financial Condition - Assets."
The decrease in income from other interest-earning assets was
caused mainly by a decrease in the average balance of these
assets of $2,174,456. This category of assets consists primarily
of interest-earning demand and time deposits held at FHLB.
INTEREST EXPENSE
Interest expense on deposits increased $36,342 during the second
half of 1996 when compared to the second half of 1995. The
increase in the cost of deposits was caused by an increase in the
average rate paid on deposits. The average interest rate paid in
time certificates was decreasing during the first six months of
1996 but was higher, on average, than the average rate paid on
new and renewing certificates during the first six months of
1995.
As previously discussed, beginning in the fourth quarter of 1994,
the Bank began taking advantage of a relatively inexpensive
source of funding available through FHLB to purchase financial
instruments that yield a slightly higher return than the rate
charged on the advances. The level of the borrowings increased
substantially during the last twelve months and averaged
$10,083,159 more during the first half of 1996 than during the
same period of 1995. The increase in the average balance of
advances resulted in an increase in interest expense of
$253,315 even though the average interest rate decreased from
5.24% to 5.12%.
PROVISION FOR CREDIT LOSSES
No provision for credit losses was made during the six months
ended June 30, 1996 due to management's assessment that additions
were not required.
NET INTEREST INCOME
Net interest income increased from $1,169,862 for the six month
period ended June 30, 1995 to $1,192,510 for the same period of
1996. This increase was primarily due to an increase of
$7,945,741 in the average balance of interest-earning assets
which more than offset a decrease in the interest rate spread
from 2.89% to 2.69%.
NON-INTEREST INCOME
Non-interest income decreased $7,170 during the first half of
1996 when compared to the first half of 1995. Gain on the
sale of loans decreased $939 due to a decrease in the volume of
loans originated and sold. Service charges on deposits decreased
$1,991 mainly due to fewer overdraft charges being assessed and
collected. During the previous year, shares in a mutual fund
were redeemed at a gain of $508 whereas during the current year
the shares were redeemed at a $1,593 loss.
NON-INTEREST EXPENSE
Overall, non-interest expense increased $6,851 during the first
six months of 1996. Compensation and benefits decreased by
$5,513 due to a decrease in the costs of the Bank's group medical
plan of $3,785 and small decreases in employee pension plans.
Occupancy and equipment expense and federal insurance premium
expense remained at approximately the same level as the previous
year. Other expenses increased $11,773 and was primarily caused
by payments for consulting fees in connection with analysis of
the Bank's current balance sheet and legal and
professional fees.
INCOME TAXES
The change in income tax is primarily the result of a change in
net earnings before taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Bank is required to maintain minimum levels of liquid assets
as defined by the Office of Thrift Supervision regulations. This
requirement, which may vary from time to time, depends upon,
among other things, economic conditions and the amount of cash
flows needed for operations and is based upon a percentage of
deposits and short-term borrowings. The required ratio currently
is 5%. The Bank's liquidity averaged 27.10% during the second
quarter of 1996. The Bank adjusts its liquidity levels in order
to meet funding needs for deposit outflows, payment of real
estate taxes from escrow accounts on mortgage loans, repayment of
borrowings, when applicable, and loan funding commitments. The
Bank also adjusts its liquidity level as appropriate to meet its
asset/liability objectives.
The Bank's primary sources of funds are deposits, amortization
and prepayments of loans and mortgage-backed securities, FHLB
advances, sales and maturities of investments and funds provided
from operations. While scheduled loan amortization and maturing
investment securities are a relatively predictable source of
funds, deposit flow and loan prepayments are greatly influenced
by market interest rates, economic conditions and competition.
The Bank manages the pricing of its deposits to maintain a steady
deposit balance. In addition, the Bank invests its excess funds
in short-term time deposits which provide liquidity to meet
lending requirements. Interest-bearing deposits at June 30, 1996
amounted to $668,764. The Bank's liquidity, represented by cash
and cash equivalents, is a product of its operating, investing
and financing activities. These activities are summarized as
follows:
<TABLE>
<CAPTION>
6 Months Ended
June 30,
(in thousands)
1996 1995
_______________
<S> <C> <C>
Cash and cash equivalents at beginning of yr $ 909 $1,465
______ _____
OPERATING ACTIVITIES:
Net Income 342 345
Adjustments to reconcile net income to net
cash provided by operation activities 11 113
______ ______
Net cash provided by operating activities 353 458
Net cash provided (used) by investing
activities (11,587) (792)
Net cash provided (used) by financing
activities 11,612 3,103
______ ______
Net increase (decrease) in cash
and cash equivalents 378 2,769
______ ______
Cash and cash equivalents at end of period $1,287 $4,234
====== ======
</TABLE>
Liquidity management is both a daily and long-term function of
business management. Excess liquidity is generally invested in
short-term investments such as Federal funds and interest-bearing
deposits. If the Bank requires funds beyond its ability to
generate them internally, borrowing agreements exist with the
FHLB, which provides an additional source of funds.
The Bank anticipates it will have sufficient funds available to
meet its current loan commitments. At June 30, 1996, the Bank
had outstanding commitments of $4,290,602. Certificates of
deposit scheduled to mature in one year or less at June 30, 1996
totaled $23,737,667. Based on past experience, management
believes that a substantial portion of such deposits will remain
with the Bank.
The following table sets forth the Bank's capital position at
June 30, 1996, as compared to the minimum regulatory
requirements:
<TABLE>
<CAPTION>
Percent Of
Adjusted
Amount Assets
(dollars in thousands)
________________________
<S> <C> <C>
TANGIBLE CAPITAL:
Required $ 1,145 1.50%
Actual 10,990 14.40%
_________ ________
Excess $ 9,845 12.90%
========= ========
CORE CAPITAL:
Required $ 2,289 3.00%
Actual 10,990 14.40%
_________ ________
Excess $ 8,701 11.40%
========= ========
RISK BASED CAPITAL:
Required $ 2,293 8.00%
Actual 11,349 39.59%
_________ ________
Excess $ 9,056 31.59%
========= ========
</TABLE>
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements of the Company and notes
thereto, presented elsewhere herein, have been prepared in
accordance with generally accepted accounting principles
("GAAP"), which require the measurement of financial position and
operating results in terms of historical dollars without
considering the change in the relative purchasing power of money
over time due to inflation. The impact of inflation is reflected
in the increased cost of the Company's operations. Unlike most
industrial companies, nearly all the assets and liabilities of
the Company are financial. As a result, interest rates have a
greater impact on the Company's performance than do the effects
of general levels of inflation. Interest rates do not
necessarily move in the same direction or to the same extent as
the prices of goods and services.
DISPARITY IN INSURANCE PREMIUMS AND SPECIAL ASSESSMENT
Federal law requires that the FDIC maintain the reserve level of
the SAIF and the Bank Insurance Fund ("BIF") at 1.25% of insured
deposits. Reserves are funded through payments by insured
institutions of insurance premiums. On September 30, 1995, due
to the BIF reaching the required reserve level, the FDIC reduced
the insurance premiums for members of BIF to a range of between
0.04% and 0.31% of deposits while maintaining the current range
of between 0.23% and 0.31% of deposits for members of SAIF.
Effective January 1, 1996 a vast majority of the BIF members are
required to pay a maximum of $2,000 in annual deposit insurance
premiums. The FDIC is required to set insurance premiums
independently for members of BIF and SAIF.
A disparity in insurance premiums between those required for SAIF
members, such as the Bank, and BIF members could allow BIF
members to attract and retain deposits at a lower effective cost
than that of SAIF members. In the event BIF members in the
Bank's market area, as a result of the reduction in insurance
premiums, increase the interest rates paid on deposits,
competitive pressure would be put on the Bank to raise the
interest rates paid on deposits thus increasing its cost of funds
and possibly reducing net interest income. An increase in
interest expense would also impair the Bank's ability to maintain
low operating costs. This competitive disadvantage could result
in the Bank losing deposits to BIF members who have a lower cost
of funds and are, therefore, able to pay higher rates of interest
on deposits. Although the Bank has other sources of funds, these
other sources may have higher costs than those of deposits,
resulting in lower net yields on loans originated using such
funds.
Several alternatives to mitigate the effect of the BIF/SAIF
insurance premium disparity have recently been proposed by the
U.S. Congress, federal regulators, certain industry lobbyists and
the executive branch of the United States Government. One plan
that has gained support of several sponsors would require all
SAIF member institutions, including the Bank, to pay a one-time
fee of approximately 0.85% ($0.85 for every $100 of deposits) on
the amount of deposits held by the member institution to
recapitalize the SAIF. If this proposal is enacted by Congress,
the effect would be to immediately reduce the capital of SAIF-
member institutions by the amount of the fee, and such amount
would be immediately charged to earnings, unless the institutions
are permitted to, and choose to, amortize the expense of the fee
over a period of years. If an 85 basis point (0.85%) assessment
was effected, based on deposits as of December 31, 1995, the
Bank's pro rate share would amount to $249,305 after taxes. If
the Bank is required to pay the proposed special assessment,
future deposit insurance premiums are expected to be reduced from
0.23% to approximately 0.06%. Based upon the Bank's deposits as
of December 31, 1995, the Bank's deposit insurance expense would
decrease by approximately $75,547 per year after taxes.
Management of the Bank is unable to predict whether this proposal
or any similar proposal will be enacted or whether ongoing SAIF
premiums will be reduced to a level comparable to that of BIF
premiums.
RECAPTURE OF BAD DEBT RESERVE
On August 2, 1996, both the U.S. House of Representatives and the
U.S. Senate passed the Small Business Job Protection Act of 1996.
This bill will, if signed by the President, among other things,
equalize the taxation of thrifts and banks. Previously, thrifts
had been able to deduct a portion of their bad-debt reserves set
aside to cover potential loan losses ("bad-debt reserves").
Furthermore, the bill will repeal current law mandating recapture
of thrifts' bad debt reserves if they convert to banks. Bad debt
reserves set aside through 1987 will not be taxed, however, any
reserves taken since January 1, 1988 will be taxed over a six
year period beginning in 1997. Institutions can delay these
taxes for two years if they meet a residential-lending test. The
Bank has $226,000 of post 1987 bad-debt reserves subject to
taxation. Any recapture of the Bank's bad-debt reserves will
have an adverse effect on net income.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Neither the Company nor the Bank was engaged in any legal
proceeding of a material nature at June 30, 1996. From time to
time, the Bank is a party to legal proceedings in the ordinary
course of business wherein it enforces its security interest in
loans.
Item 2. Changes in Securities
Not Applicable.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders of the Company was held on
April 24, 1996. The following directors were elected to serve
terms of three years ending in 1999: Carl F. Rupp and David C.
Kellam. Also, Dalby, Wendland and Co., P.C. was ratified as the
Company's independent auditors for the fiscal year ending
December 31, 1996.
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11: Statement regarding computation of earnings per
share.
Exhibit 27: Article Financial Data Schedule
(b) Reports on Form 8-K
On June 7, 1996 the Company filed an 8-K with the SEC announcing
the completion of its stock repurchase program. The Company
repurchased 32,039 or 5% of its outstanding common stock over an
eight week period in six open market transactions.
SIGNATURES
Pursuant to the requirements 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-COUNTY BANCORP, INC. AND SUBSIDIARIES
Date: August 8, 1996 Robert L. Savage
President and Chief Executive Officer
Date: August 8, 1996 Tommy A. Gardner
Vice President and Chief Financial Officer
<TABLE>
EXHIBIT 11
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE (unaudited)
<CAPTION>
Three Months Ended
June 30,
1996 1995
___________________
<S> <C> <C>
EARNINGS PER SHARE
Net earnings available for common shares
and common stock equivalent shares deemed
to have a dilutive effect $184,560 $156,691
======== ========
Primary earnings per share $0.30 $0.24
======== ========
Fully diluted earnings per share $0.30 $0.24
======== ========
Shares used in primary earnings per
share computation
Weighted average common shares outstanding 613,775 642,314
======== ========
Shares used in fully diluted earnings
per share computation
Weighted average common shares outstanding 582,695 624,266
Additional potentially dilutive effect
of stock options 31,894 19,571
________ ________
614,589 643,837
======== ========
<CAPTION>
Six Months Ended
June 30,
1996 1995
___________________
<S> <C> <C>
EARNINGS PER SHARE
Net earnings available for common shares
and common stock equivalent shares deemed
to have a dilutive effect $342,352 $344,625
======== ========
Primary earnings per share $0.55 $0.54
======== ========
Fully diluted earnings per share $0.55 $0.53
======== ========
Shares used in primary earnings per
share computation
Weighted average common shares outstanding 621,193 641,426
======== ========
Shares used in fully diluted earnings
per share computation
Weighted average common shares outstanding 590,960 626,259
Additional potentially dilutive effect
of stock options 31,894 19,571
________ ________
622,854 645,830
======== ========
<FN>
The weighted average common shares outstanding has been computed
net of ESOP shares of 40,365 (1996) and 46,345 (1995)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<CAPTION>
EXHIBIT 27
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
ARTICLE 9 FINANCIAL DATA SCHEDULE
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 618,041
<INT-BEARING-DEPOSITS> 668,764
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 29,129,988
<INVESTMENTS-CARRYING> 13,287,199
<INVESTMENTS-MARKET> 13,431,924
<LOANS> 31,168,205
<ALLOWANCE> 417,376
<TOTAL-ASSETS> 76,717,914
<DEPOSITS> 45,454,291
<SHORT-TERM> 17,500,000
<LIABILITIES-OTHER> 405,750
<LONG-TERM> 949,617
0
0
<COMMON> 74,750
<OTHER-SE> 12,333,506
<TOTAL-LIABILITIES-AND-EQUITY> 76,717,914
<INTEREST-LOAN> 1,206,820
<INTEREST-INVEST> 1,375,316
<INTEREST-OTHER> 14,721
<INTEREST-TOTAL> 2,593,857
<INTEREST-DEPOSIT> 1,049,324
<INTEREST-EXPENSE> 352,023
<INTEREST-INCOME-NET> 1,192,510
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 764,161
<INCOME-PRETAX> 505,552
<INCOME-PRE-EXTRAORDINARY> 505,552
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 342,352
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.55
<YIELD-ACTUAL> 3.41
<LOANS-NON> 33,825
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 98,990
<ALLOWANCE-OPEN> 423,079
<CHARGE-OFFS> 5,703
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 417,376
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 417,376
</TABLE>
