SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended: June 30, 1997
Commission file number: 0-22220
Name of Small Business Issuer: TRI-COUNTY BANCORP, INC.
State of Incorporation or Organization: WYOMING
I.R.S. Employer Identification No.: 83-0304855
Address of Officer: 2201 MAIN STREET, TORRINGTON, WY 82240
Issuer's Telephone Number, Including Area Code: (307) 532-2111
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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:
The number of shares outstanding of each of the issuer's classes of common
stock as of August 14, 1997.
Class: $.10 par value common stock
Outstanding: 583,749 shares
Transitional Small Business Disclosure Format (check one): Yes: No: X
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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, 1997 (unaudited)
and December 31, 1996 3
Condensed Consolidated Statements of Operations
for the Three Months and Six Months Ended June 30, 1997
and 1996 (unaudited) 4
Condensed Consolidated Statements of Stockholder's Equity
for the Six Months Ended June 30, 1997 (unaudited) 5
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1997
and 1996 (unaudited) 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis or Plan
Of Operation 9
PART II OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Default Upon Senior Securities 17
Item 4. Submissions of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30,1997 Dec 31, 1996
(unaudited)
------------ ------------
ASSETS
Cash $ 771,394 $ 537,194
Interest earning deposits at other
financial institutions 674,401 1,751,397
Securities available-for-sale 40,621,270 36,393,415
Securities held-to-maturity, market value
of $9,200,626 (1997) and $10,589,405 (1996) 8,920,586 10,319,706
Loans receivable, net 36,818,677 35,266,702
Loans held for resale 67,485 90,000
Office property and equipment, net 933,382 921,681
Prepaid expenses and other assets 649,633 609,923
------------- -------------
Total Assets $ 89,456,828 $ 85,890,018
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits $ 437,725 $ 367,480
Savings and NOW deposits 11,937,289 12,199,233
Other time deposits 34,466,730 35,966,345
------------- -------------
Total Deposits 46,841,744 48,533,058
Advances from Federal Home Loan Bank 28,086,742 23,460,492
Advances by borrowers for taxes and insurance 119,215 105,811
Accounts payable and accrued expenses 226,139 234,653
Deferred income taxes 480,579 410,440
------------- -------------
Total Liabilities 75,754,419 72,744,454
============= =============
Stockholders' Equity
Preferred stock, $.10 par value,
5,000,000 shares authorized, none issued 0 0
Common stock, 10,000,000 shares of $.10 par
value authorized, 608,749 (1997) and
608,749 (1996) shares issued and
outstanding 74,750 74,750
Additional paid in capital 7,056,015 7,029,604
Retained earnings - substantially restricted 8,643,046 8,353,630
Unearned compensation relating to Management
Stock Bonus Plan and ESOP (456,212) (506,725)
Unrealized gain/(loss) on securities
available-for-sale, net of tax 430,124 239,619
Treasury stock, 138,751 (1997) and
138,751 (1996) shares, at cost (2,045,314) (2,045,314)
------------- -------------
Total Stockholders' Equity 13,702,409 13,145,564
------------- -------------
Total Liabilities and Stockholders' Equity $89,456,828 $85,890,018
============= =============
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<PAGE>
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
Interest Income
Loans $ 749,565 $ 625,800 $1,488,061 $1,203,820
Securities available-for-sale 653,333 465,087 1,238,758 847,496
Securities held-to-maturity 184,940 246,625 375,524 527,820
Other interest earning assets 8,910 4,776 20,886 14,721
---------- ---------- ---------- ----------
Total Interest Income 1,596,748 1,342,288 3,123,229 2,593,857
---------- ---------- ---------- ----------
Interest Expense
Deposits 546,399 520,716 1,093,218 1,049,324
Advances and other borrowings 381,904 210,235 697,926 352,023
---------- ---------- ---------- ----------
Total Interest Expense 928,303 730,951 1,791,144 1,401,347
---------- ---------- ---------- ----------
Net Interest Income 668,445 611,337 1,332,085 1,192,510
Provision for credit losses -- -- -- --
---------- ---------- ---------- ----------
Net Interest Income After
Provision for Credit Losses 668,445 611,337 1,332,085 1,192,510
---------- ---------- ---------- ----------
Non-Interest Income
Gain on sale of loans 6,452 10,008 16,403 17,088
Gain (loss) on sale of
available-for-sale securities 1,172 -- 1,172 (1,593)
Service charges on deposits 28,135 23,137 56,316 47,198
Other, net 11,486 8,413 15,947 14,510
---------- ---------- ---------- ----------
Total Non-Interest Income 47,245 41,558 89,838 77,203
---------- ---------- ---------- ----------
Non-Interest Expense
Compensation and benefits 195,993 180,726 385,593 353,637
Occupancy and equipment 86,073 71,652 161,865 144,401
Federal deposit insurance premium 7,964 25,553 15,315 51,243
Other, net 92,157 106,304 181,457 214,880
---------- ---------- ---------- ----------
Total Non-Interest Expense 382,187 384,235 744,230 764,161
---------- ---------- ---------- ----------
Earnings Before Income Taxes 333,503 268,660 677,693 505,552
Income Taxes 90,400 84,100 205,652 163,200
---------- ---------- ---------- ----------
Net Earnings $ 243,103 $ 184,560 $ 472,041 $ 342,352
========== ========== ========== ==========
Earnings Per Common Share - Primary $ 0.40 $ 0.30 $ 0.78 $ 0.55
Cash Dividends Per Common Share $ 0.15 -- $ 0.30 $ 0.25
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<PAGE>
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Six Months Ended June 30, 1997(unaudited)
Employee
Additional Stock
Common Paid-In Retained Ownership
Stock Capital Earnings Plan
---------------------------------------------------
BALANCE - December 31, 1996 $74,750 $7,029,604 $8,353,630 $(403,650)
Net earnings -- -- 472,041 --
Repayment of ESOP debt -- -- -- 21,063
Allocation of ESOP shares -- 26,411 -- --
Amortization of deferred
compensation -- -- -- --
Change in unrealized gain on
securities available-for-
sale, net of tax -- -- -- --
Dividends paid -- -- (182,625) --
Treasury stock purchased -- -- -- --
----------------------------------------------------
BALANCE - June 30, 1997 $74,750 $7,056,015 $8,643,046 $(382,587)
====================================================
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (cont.)
For the Six Months Ended June 30, 1997(unaudited)
Unrealized
Gain on
MSBP Securities
Unearned Available- Treasury
Compensation for-Sale Stock Total
---------------------------------------------------
BALANCE - December 31, 1996 $(103,075) $239,619 $(2,045,314) $13,145,564
Net earnings -- -- -- 472,041
Repayment of ESOP debt -- -- -- 21,063
Allocation of ESOP shares -- -- -- 26,411
Amortization of deferred
compensation 29,450 -- -- 29,450
Change in unrealized gain on
securities available-for-
sale, net of tax -- 190,505 -- 190,505
Dividends paid -- -- -- (182,625)
Treasury stock purchased -- -- -- --
----------------------------------------------------
BALANCE - June 30, 1997 $(73,625) $430,124 $(2,045,314) $13,702,409
====================================================
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<PAGE>
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Six Months Ended
June 30,
1997 1996
--------------------------
Net Cash Provided by Operations $ 482,281 $ 352,904
----------- -----------
Investing Activities
Principal payments received on held-to-maturity
securities 1,404,137 4,974,589
Purchase of held-to-maturity securities -- --
Purchase of available-for-sale securities (6,626,825) (11,655,917)
Sale of available-for-sale securities 1,927,850 200,000
Principal payments received on held-to-maturity
securities 786,017 504,556
Net decrease (increase) in loans (137,622) (164,004)
Purchase of loans (1,448,720) (5,490,591)
Proceeds from sale of real estate owned 52,392 76,831
Investment in property and equipment and
real estate owned (69,087) (32,913)
---------- ----------
Net Cash Provided (Used) By Investing Activities (4,111,858) (11,587,449)
---------- ----------
Financing Activities
Net increase (decrease) in deposits (1,691,314) 870,992
Net increase (decrease) in advances from
borrowers for taxes and insurance 13,404 9,403
FHLB borrowings 28,450,000 11,449,617
Repayment of FHLB advance (23,823,750) --
Payments received from ESOP 21,064 29,900
Treasury stock purchased -- (587,097)
Cash dividends paid (182,625) (160,197)
---------- ----------
Net Cash Provided (Used) By Financing Activities 2,786,779 11,612,618
---------- ----------
Increase (Decrease) in Cash and Cash Equivalents (842,798) 378,073
Cash and cash equivalents - beginning of period 2,288,592 908,732
---------- ----------
Cash and cash equivalents - end of period $1,445,794 $1,286,805
========== ==========
Supplemental Disclosures
Cash paid for:
Interest $1,811,574 $1,360,307
Income taxes 221,300 143,600
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TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997(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 1996 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, 1996. 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 six-month period ended June 30, 1997 are not
necessarily indicative of the results which may be expected for the year ending
December 31, 1997 or any other period.
See Notes 2 and 3.
NOTE 2 - EARNINGS PER SHARE
Earnings per share for the six months ended June 30, 1997 and 1996, 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.
-7-
<PAGE>
PART I - FINANCIAL INFORMATION
Item 2 - Management's Discussion and 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 consist 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 $3,566,810 or 4.15% during the first
half of 1997.
Securities available-for-sale increased by $4,227,855 during the first six
months of 1997. Agency securities totaling $6,500,000 were purchased during the
first half of 1997 and this increase was partially offset by principal payments
and prepayments of $786,017 on mortgage-backed securities and the sale of
agency securities totaling $1,920,000.
Securities held-to-maturity decreased by $1,399,120. The decrease was the
result of principal payments and prepayments of $897,956 on the Bank's
portfolio of mortgage-backed securities and the maturity of an agency security
in the amount of $500,000.
Loans receivable increased $1,551,975 during the first half of 1997. During
this period the Bank originated or purchased portfolio residential mortgage
loans totaling $3,105,850, consumer loans totaling $1,391,468, and a short-term
commercial loan in the amount of $156,000. By the end of the quarter, the Bank
had received full repayment of the short-term commercial loan and repayments
totaling $2,355,939 on other loans. Of the total mortgage loans originated or
purchased during the first half of the year, $897,235 were adjustable rate and
$2,208,615 were fixed rate loans. Because of a lack of demand for certain
types of loans in the Bank's primary lending area, purchased loans totaled
46.64% of mortgage lending during the period. The majority of purchased loans
are residential real estate loans in Colorado mountain resort communities and
non-residential real estate loans in western New Mexico. Purchased loans are
subjected to the same underwriting standards and loan terms as those originated
by the Bank for its portfolio.
LIABILITIES
Deposit balances decreased by $1,691,314 and consisted of an increase of
$70,245 in checking deposits and decreases of $261,944 and $1,499,615 in savings
and time deposits, respectively. The decrease in time deposits was due, in
part, to the scheduled maturity of a deposit held by a local school district,
which was originally issued in the fourth quarter of 1996.
Advances from FHLB increased by $4,626,250 during the six-month period ended
June 30, 1997. Advances totaling $4,000,000 were obtained to purchase
securities classified as available-for-sale. The advances have terms of
approximately one year and were used to purchase Federal Home Loan Bank
callable securities. The advance's maturity dates coincide with the first call
date of the securities. The Bank was able to lock in positive spreads over the
initial term of each advance and will make a decision whether to renew the
advance and hold the security, if not called, or sell the security and payoff
the advance on or near the maturity date of the advances.
Deferred income taxes increased by $70,139 during the first six months of 1997
and 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 increased $288,644 during the period, which
resulted in an increase in deferred income taxes. Also, legislation was passed
in August of 1996 that required the Bank to establish tax reserves for bad
debts and compute additions thereto using a six-year moving average of the
Bank's actual loss experience (the "Experience Method"). The additions to the
tax reserves computed using the Experience Method can, within specified
limitations, be deducted in arriving at taxable income. However, the Bank had
established reserves for loan losses, which totaled $414,000 at June 30, 1997,
which will be charged with any subsequent loan losses. Therefore, the Bank will
have a difference in the treatment of loan losses for book and tax purposes and
a deferred tax asset is being established for this difference.
STOCKHOLDERS' EQUITY
The increase in additional paid-in capital of $26,411 was caused by the
application of an accounting standard which requires charging current expense
for the fair value of shares of stock committed to be released by the Bank's
Employee Stock Ownership Plan and crediting the difference between the fair
value and the cost of the shares to paid-in capital.
The increase in retained earnings was the result of net earnings totaling
$472,041 which more than offset the decrease in retained earnings caused by the
payments of dividends of $0.30 per share totaling $182,625.
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 increased during
the first six months of 1997 and resulted in a decrease, net of deferred income
tax, of $190,505.
COMPARISON OF THE OPERATING RESULTS FOR THE
THREE MONTHS ENDED JUNE 30, 1997 AND 1996
NET INCOME
Net income increased $58,543 or 31.72% during the second quarter of 1997 when
compared to the same period of 1996. Net interest income increased by $57,108,
non-interest income increased by $5,687 and non-interest expense decreased by
$2,048. The provision for income taxes increased by $6,300.
INTEREST INCOME
Interest income from loans increased $123,765 or 19.78% for the quarter ended
June 30, 1997. The increase was the result of an increase in the average
balance of loans outstanding of $5,550,369 and an increase in yield on the
loans from 7.99% to 8.28%. The Bank began originating and purchasing loans
outside its primary lending area, which enabled the Bank to increase its loan
portfolio.
The increase in yield was primarily the result of the slight increase in
average lending rates during 1997 when compared to the average rates in the
previous year.
The increase of $188,246 in interest on securities available-for-sale was the
result of an increase in the average balance of securities of $12,642,741 which
offset a slight decrease in the average yield on the portfolio from 6.53% to
6.52%.
A decrease in interest of $61,685 on securities held-to-maturity was caused by
a decrease in the average balance of the portfolio of $4,383,852. This
decrease was partially offset by an increase in the yield on the portfolio from
7.35% to 7.73%. The increase in yield was the result of the maturing of
securities that, on average, had a lower yield than the yield on the entire
portfolio. The proceeds of the maturities were used to fund loans and purchase
available for sale securities.
The increase in income from other interest-earning assets of $4,134 was
primarily caused by an increase in the average balance of these assets. This
category of assets consists primarily of interest-earning demand and time
deposits held at FHLB.
INTEREST EXPENSE
Interest expense on deposits increased $25,683 during the second quarter of
1997. This increase was the result of an increase of $1,464,321 in the average
balance of deposits and an increase in the average cost of deposits from 4.59%
to 4.64%.
The Bank took advantage of a relatively inexpensive source of funding available
through the FHLB to purchase financial instruments that yield a slightly higher
return than the rate charged on the advances. The average balance of these
borrowings was $10,458,654 greater during the second quarter of 1997 than
during the second quarter of 1996 and the average cost increased from 5.15% to
5.70% which resulted in an increase of $171,669 in interest expense.
PROVISION FOR LOAN LOSSES
No provision for loan losses was made during the second quarter of 1997. The
allowance for loan losses is based on Management's evaluation of the risk
inherent in its loan portfolio after giving due consideration to the changes in
general market conditions and in the nature and volume of the Bank's loan
activity. The Bank intends to continue to provide for loan losses based on its
periodic review of the loan portfolio and general market conditions. The
allowance for loan losses amounted to $414,000 at June 30, 1997. While the
Bank maintains its allowance for loan losses at a level which it considers
adequate to provide for potential losses, there can be no assurances that
further additions will not be made to the loss allowance and that such losses
will not exceed the estimated amounts.
NON-INTEREST INCOME
Non-interest income increased $5,687 or 13.68% during the second quarter of
1997. The increase in the gain on the sale of loans was the result of an
increase in the dollar amount of loans sold. The increase in service charges
on deposits of $4,998 was primarily caused by an increase in the number of
accounts subject to service charges. Other non-interest income increased by
$3,073 and was primarily the result of the recovery during the current period of
foreclosure costs incurred in a prior period.
NON-INTEREST EXPENSE
Overall, non-interest expense decreased $2,048 during the second quarter of
1997.
Compensation and benefits increased by $15,267 in 1997 and was primarily caused
by an increase in overall salaries and fees paid in connection with the
computation and final distribution of funds of a terminated defined-benefit
pension plan.
Occupancy and equipment expense increased $14,421 and was primarily caused by
an increase in data processing costs and building repairs.
Legislation was passed in the third quarter of 1996 that provided for the
recapitalization of the SAIF insurance fund via a one-time special assessment.
Because of the recapitalization, the premiums charged by the fund decreased by
$17,589 during the second quarter of 1997.
Other net expenses decreased by $14,147, primarily the result of the
discontinuance of a consulting agreement in connection with an analysis of the
Bank's balance sheet and a decrease in legal fees.
INCOME TAXES
The provision for income taxes increased $6,300 for the quarter ended June 30,
1997. This increase was due primarily to an increase in pre-tax income of
$64,843. Also, because the Bank had established reserves for loan losses which
will be charged with any subsequent loan losses and because the Bank will be
allowed a deduction for losses incurred on loans foreclosed after December 31,
1995 for tax purposes, the Bank will have a difference in the treatment of loan
losses for tax and financial purposes. As previously stated, a deferred tax
asset is being established by the Bank and the effect of this change in the
second quarter of 1997 was a reduction in the expense for income taxes totaling
$17,600.
COMPARISON OF THE OPERATING RESULTS FOR THE
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
NET INCOME
Net income increased $129,689 or 37.88% during the first half of 1997 when
compared to the same period of 1996. Net interest income increased by
$139,575, non-interest income increased by $12,635 and non-interest expense
decreased by $19,931. The provision for income taxes increased by $42,452.
INTEREST INCOME
Interest income from loans increased $284,241 or 23.61% for the six-month
period ended June 30, 1997. The increase was the result of an increase of
$6,422,654 in the average balance of loans outstanding and an increase in yield
on the loans from 8.01% to 8.25%. The Bank began originating and purchasing
loans outside its primary lending area, which enabled the Bank to increase its
loan portfolio. The increase in yield was primarily the result of the slight
increase in average lending rates during 1997 when compared to the average
rates in the previous year.
The increase of $391,262 in interest on securities available-for-sale was the
result of an increase in the average balance of securities of $12,847,678 and an
increase in the average yield on the portfolio from 6.29% to 6.41%.
Interest on securities held-to-maturity decreased $152,296 and was caused by a
decrease in the average balance of the portfolio of $4,646,963, which offset an
increase in the yield on the portfolio from 7.46% to 7.67%. The increase in
yield was the result of the maturing of securities that, on average, had a
lower yield than the yield on the entire portfolio. The proceeds of the
maturities were used to fund loans and purchase available for sale securities.
The increase in income from other interest-earning assets of $6,165 was
primarily caused by an increase in the average balance of these assets. This
category of assets consists primarily of interest-earning demand and time
deposits held at FHLB.
INTEREST EXPENSE
Interest expense on deposits increased $43,894 during the first half of 1997.
This increase was the result of an increase of $2,221,321 in the average
balance of deposits which more than offset the slight decrease in the average
cost of deposits from 4.63% to 4.58%.
The Bank took advantage of a relatively inexpensive source of funding available
through the FHLB to purchase financial instruments that yield a slightly higher
return than the rate charged on the advances. The average balance of these
borrowings was $11,280,654 greater during the first half of 1997 than during
the first half of 1996 and the average cost increased from 5.11% to 5.57% which
resulted in an increase of $345,903 in interest expense.
PROVISION FOR LOAN LOSSES
No provision for loan losses was made during the first six months of 1997. The
allowance for loan losses is based on Management's evaluation of the risk
inherent in its loan portfolio after giving due consideration to the changes in
general market conditions and in the nature and volume of the Bank's loan
activity. The Bank intends to continue to provide for loan losses based on its
periodic review of the loan portfolio and general market conditions. The
allowance for loan losses amounted to $414,000 at June 30, 1997. While the
Bank maintains its allowance for loan losses at a level which it considers
adequate to provide for potential losses, there can be no assurances that
further additions will not be made to the loss allowance and that such losses
will not exceed the estimated amounts.
NON-INTEREST INCOME
Non-interest income increased $12,635 or 16.37% during the first half of 1997.
The decrease in the gain on the sale of loans was the result of a decrease in
the dollar amount of loans sold. The increase in service charges on deposits of
$9,118 was primarily caused by an increase in the number of accounts subject to
service charges. Other non-interest income increased by $1,437 and was
primarily the result of the recovery during the current period of foreclosure
costs incurred in a prior period.
NON-INTEREST EXPENSE
Overall, non-interest expense decreased $19,931 during the first half of 1997.
Compensation and benefits increased by $31,956 in 1997 and was primarily caused
by an increase in overall salaries, fees paid in connection with the
computation and final distribution of funds of a terminated defined-benefit
pension plan and an increase in the cost of group medical insurance. Occupancy
and equipment expense increased $17,464 and was primarily caused by an increase
in data processing costs and building repairs.
Legislation was passed in the third quarter of 1996 that provided for the
recapitalization of the SAIF insurance fund via a one-time special assessment.
Because of the recapitalization, the premiums charged by the fund decreased by
$35,928 during the first half of 1997 when compared to the same period of 1996.
Other net expenses decreased by $19,931, primarily the result of the
discontinuance of a consulting agreement in connection with an analysis of the
Bank's balance sheet and a decrease in legal fees.
INCOME TAXES
The provision for income taxes increased $42,452 for the six-month period ended
June 30, 1997. This increase was due primarily to an increase in pre-tax
income of $172,141.
Also, because the Bank had established reserves for loan losses which will be
charged with any subsequent loan losses and because the Bank will be allowed a
deduction for losses incurred on loans foreclosed after December 31, 1995 for
tax purposes, the Bank will have a difference in the treatment of loan losses
for tax and financial purposes. As previously stated, a deferred tax asset is
being established by the Bank and the effect of this change in the first half of
1997 was a reduction in the expense for income taxes totaling $35,200 which
offset an additional accrual of tax for the year ended December 31, 1996 in the
amount of $12,952.
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 24.16% during the second quarterf of 1997. 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 that provide
liquidity to meet lending requirements. Interest-bearing deposits at June 30,
1997 amounted to $1,063,927. 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:
6 Months Ended June 30,
(in thousands)
1997 1996
---------------------
Cash and cash equivalents at beginning of year $ 2,289 $ 909
------- -------
OPERATING ACTIVITIES:
Net Income 472 342
Adjustments to reconcile net income to net cash
provided by operation activities 10 11
------- -------
Net cash provided by operating activities 482 353
Net cash provided (used) by investing activities (4,112) (11,587)
Net cash provided (used) by financing activities 2,787 11,612
------- -------
Net increase (decrease) in cash and cash equivalents (843) 378
------- -------
Cash and cash equivalents at end of period $ 1,446 $ 1,287
======= =======
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, 1997, the Bank had outstanding
commitments of $2,913,588. Certificates of deposit scheduled to mature in one
year or less at June 30, 1997 totaled $28,639,945. 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, 1997, as
compared to the minimum regulatory requirements:
Percent Of
Amount Adjusted Assets
----------------------------
(Dollars in thousands)
TANGIBLE CAPITAL:
Required $ 1,321 1.50%
Actual 11,270 12.79%
-------- ------
Excess $ 9,949 11.29%
======== ======
CORE CAPITAL:
Required $ 2,642 3.00%
Actual 11,270 12.79%
-------- ------
Excess $ 8,628 9.79%
======== ======
RISK BASED CAPITAL:
Required $ 1,957 8.00%
Actual 11,684 47.77%
-------- ------
Excess $ 9,727 39.77%
======== ======
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.
<PAGE>
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, 1997. 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 23, 1997.
The following directors were elected to serve terms of three years ending in
2000: Larry C. Goddard and Robert L. Savage. Larry C. Goddard received
541,091 votes with no votes withheld. Robert L. Savage received 541,091 votes
with no votes withheld.
Dalby, Wendland & Co., P.C. was ratified as the Company's independent auditors
for the fiscal year ending December 30, 1997 with 539,791 votes for and 1,300
abstentions.
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: FDS (in electronic filing only)
(b) Reports on Form 8-K
On June 19, 1997, the Registratant filed Form 8-K announcing that the Board of
Directors had authorized the repurchase of up to $600,000 of its outstanding
stock in open market transactions.
-17-
<PAGE>
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 6, 1997 /s/ Robert L. Savage
President and Chief Executive Officer
Date: August 6, 1997 /s/ Tommy A. Gardner
Vice President and Chief Financial Officer
-18-
EXHIBIT 11
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
Three Months Ended Six Months Ended
June 30, 1997 June 30, 1997
1997 1996 1997 1996
----------------- ----------------
EARNINGS PER SHARE
Net earnings available for common
shares and common stock equivalent
shares deemed to have a
dilutive effect $243,101 $184,560 $472,041 $342,352
======== ======== ======== ========
Primary earnings per share $0.40 $0.30 $0.78 $0.55
===== ===== ===== =====
Fully diluted earnings per share $0.40 $0.30 $0.77 $0.55
===== ===== ===== =====
Shares used in primary earnings
per share computation
Weighted average common shares
outstanding 610,316 613,775 608,788 621,193
======== ======== ======== ========
Shares used in fully diluted
earnings per share computation
Weighted average common shares
outstanding 611,290 582,695 611,290 590,960
Additional potentially dilutive
effect of stock options 36,926 31,894 36,926 31,894
-------- -------- -------- --------
648,216 614,589 648,216 622,854
======== ======== ======== ========
The weighted average common shares outstanding has been computed net of ESOP
shares of 34,385 (1997) and 40,365 (1996).
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 771,394
<INT-BEARING-DEPOSITS> 674,401
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 40,621,270
<INVESTMENTS-CARRYING> 8,920,586
<INVESTMENTS-MARKET> 9,200,626
<LOANS> 36,818,677
<ALLOWANCE> 414,032
<TOTAL-ASSETS> 89,456,828
<DEPOSITS> 46,841,744
<SHORT-TERM> 25,867,625
<LIABILITIES-OTHER> 28,912,675
<LONG-TERM> 2,219,117
0
0
<COMMON> 74,750
<OTHER-SE> 13,627,659
<TOTAL-LIABILITIES-AND-EQUITY> 89,456,828
<INTEREST-LOAN> 749,565
<INTEREST-INVEST> 838,273
<INTEREST-OTHER> 8,910
<INTEREST-TOTAL> 1,596,748
<INTEREST-DEPOSIT> 546,399
<INTEREST-EXPENSE> 928,303
<INTEREST-INCOME-NET> 668,445
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 1,172
<EXPENSE-OTHER> 382,187
<INCOME-PRETAX> 333,503
<INCOME-PRE-EXTRAORDINARY> 243,103
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 243,103
<EPS-PRIMARY> 0.78
<EPS-DILUTED> 0.77
<YIELD-ACTUAL> 3.10
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 99,586
<ALLOWANCE-OPEN> 415,447
<CHARGE-OFFS> 1,695
<RECOVERIES> 280
<ALLOWANCE-CLOSE> 414,032
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 414,032
</TABLE>
