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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[x] Annual report pursuant to section 13 or 15 (d) of the Securities Exchange
Act of 1934 (No fee required)
For the fiscal year ended December 31, 1996
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Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 (No fee required)
For the transition period from to .
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Commission File No. 0-22220
TRI-COUNTY BANCORP, INC.
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(Name of Small Business Issuer in Its Charter)
Wyoming 83-0304855
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(State or Other Jurisdiction of Incorporation I.R.S. Employer or
Organization) Identification No.
2201 Main Street, Torrington, Wyoming 82240
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(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: (307) 532-2111
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Securities registered under to Section 12(b) of the Exchange Act: None
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Securities registered under to Section 12(g) of the Exchange Act:
Common Stock, par value $0.10 per share
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(Title of Class)
Check whether the issuer: (1) has 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 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. [X]
State issuer's revenues for its most recent fiscal year. $5,653,170
The registrant's voting stock trades on the Nasdaq SmallCap Market under
the symbol "TRIC." The aggregate market value of the voting stock held by
non-affiliates of the registrant, based on the average bid and asked price of
the registrant's Common Stock as reported by the Nasdaq SmallCap Market on
March 26, 1997, was $11,261,857 ($18.50 per share based on 608,749 shares of
Common Stock outstanding).
As of March 26, 1997, there were issued and outstanding 608,749 shares of
the registrant's Common Stock.
Transition Small Business Disclosure Format (check one):
YES [ ] NO [X]
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Annual Report to Stockholders for the Fiscal Year
ended December 31, 1996. (Parts I, II, and IV)
2. Portions of the Proxy Statement for the Annual Meeting of
Stockholders for the Fiscal Year ended December 31, 1996. (Part III)
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PART I
Item 1. Business
Business of the Company
Tri-County Bancorp, Inc. (the "Company") is a Wyoming corporation organized in
May 1993 at the direction of Tri-County Federal Savings and Loan Association
(the "Association") in connection with the Association's conversion from the
mutual to stock form. On September 28, 1993, the Association completed its
conversion and changed its name to Tri-County Federal Savings Bank (the
"Bank"). The Company is a unitary savings and loan holding company which,
under existing laws, generally is not restricted in the types of business
activities in which it may engage provided the Bank retains a specified amount
of its assets in housing-related investments. At December 31, 1996, the
Company had total assets of $85.9 million, total deposits of $48.5 million,
and retained earnings of $13.1 million.
The office of the Company is located at 2201 Main Street, Torrington, Wyoming
and its telephone number is (307) 532-2111.
Business of the Bank
The Bank is a federally chartered savings bank headquartered in Torrington,
Wyoming. The Bank was founded in 1935 as a federally chartered savings and
loan association under the name Tri-County Federal Savings and Loan
Association. The Bank's deposits have been federally insured since 1936 and
are currently insured by the Savings Association Insurance Fund ("SAIF").
The Bank is primarily engaged in the business of attracting deposits from the
general public and using those deposits, together with other funds, to
originate mortgage loans for the purchase of residential properties and to
purchase mortgage-backed and investment securities. Since 1991, the Bank has
been expanding its lending activities beyond conventional home mortgage loans,
and the Bank now offers a full range of single and multi-family mortgages,
consumer loans, commercial real estate loans, and second mortgage loans. In
addition to originating loans in its market area, the Bank also purchases
mortgage loans, including participations, secured by properties located
primarily in Wyoming, Colorado and New Mexico, mortgage-backed securities, and
investment securities. These additional earning assets are funded with the
excess deposits and borrowed funds from the Federal Home Loan Bank of Seattle
(FHLB).
The Bank is subject to examination and comprehensive regulation by the Office
of Thrift Supervision ("OTS") and the Federal Deposit Insurance Corporation
(FDIC). The Bank is a member of and owns capital stock in the FHLB, which is
one of the 12 regional banks in the FHLB System.
The principal sources of funds for the Bank's lending activities are deposits,
borrowed funds from the FHLB, and the amortization, repayment, and maturity of
loans, investment securities, and mortgage-backed securities. Principal
sources of income are interest and fees on loans, mortgage-backed
certificates, investment securities, and deposits held in other financial
institutions. The Bank's principal expense is interest.
The Bank's home office is located at 2201 Main Street, Torrington, Wyoming,
and the Bank's telephone number is (307) 532-2111.
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Market Area - Competition
The Bank primarily has focused on serving its customers located in the
communities of Torrington and Wheatland, Wyoming, which is where the Bank's
offices are located. The Bank is the only local thrift serving its market
area. Goshen and Platte Counties, Wyoming, and Scottsbluff County, Nebraska
are considered to be the Bank's primary market area. This area was founded on
agriculture, which continues to play a significant role in the economy. Some
of the larger crops include sugar beets, corn, and dry beans. Agriculture and
its related support industries account for the largest portion of the area's
labor force. The success of agriculture is subject to various factors,
including, but not limited to, weather and foreign competition. Other
significant employers include local government (schools and utilities) and
retail trade. At December 31, 1996, over 69% of the Bank's net loan portfolio
of $35.3 million consisted of loans made to entities located in the Bank's
market area. In fiscal 1996, the Bank purchased $9.8 million of mortgage
loans (including participations inside its market area and outside its market
area, primarily in Colorado).
Due to the slow economic growth and static loan demand in its primary market
area, the Bank has continued to invest excess funds in mortgage-backed
securities, permissible investment securities, and short-term investments that
generally have a lower yield than loans. Furthermore, given the limited
demographic growth prospects in the Bank's market area, it will be difficult
for the Bank to realize growth without increasing market share or expanding
into new markets. The Bank has considered expansion in adjacent areas,
although no determination has been made regarding specific plans for such
expansion at this time. Should such actions be taken in the future,
profitability would likely be impaired in the near term as increasing market
share would require more competitive pricing of loans and deposits, while
expansion into new market areas would require adding resources to manage the
out-of-market growth.
The Bank encounters strong competition both in the attraction of deposits and
origination of real estate and other loans. Its most direct competition for
deposits has come from two locally-headquartered commercial banks, branches of
one regional savings association, and one regional bank in its market area.
Due to their size, many of the Bank's competitors possess greater financial
and marketing resources. Based on published figures, the Bank is the only
thrift headquartered in its market area. The Bank competes for deposits by
offering depositors competitive interest rates and a high level of personal
service.
The competition for real estate and other loans comes principally from
commercial banks, mortgage banking companies, and other savings associations.
This competition for loans has increased in recent years as a result of the
large number of institutions choosing to compete in the Bank's market
area. The Bank competes for loans primarily through the interest rates and
loan fees it charges and the efficiency and quality of services it provides
borrowers.
Lending Activities
General. The Bank's loan portfolio consists primarily of conventional
fixed-rate and adjustable-rate mortgage loans secured by one- to four-family
residences and, to a lesser extent, consumer and commercial real estate loans.
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Set forth below is selected data relating to the composition of the Bank's
loan portfolio by type of loan on the dates indicated.
At December 31,
1996 1995
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$ % $ %
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(Dollars in Thousands)
Type of Loans:
Construction loans $ 220 0.62% $ 405 1.59%
One-to four-family 28,745 81.51 22,418 87.87
Commercial and multi-family 4,163 11.80 1,122 4.40
Consumer loans:
Savings account loans 197 0.56 199 0.78
Home equity and second mortgage 785 2.23 655 2.57
Automobile 1,279 3.63 1,113 4.36
Overdraft 29 0.08 -- --
Other 524 1.49 447 1.75
Less:
Loans in process (168) (0.48) (333) (1.31)
Deferred loan fees (94) (0.27) (89) (0.35)
Allowance for estimated loan losses (415) (1.17) (423) (1.66)
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Total loans, net $35,265 100.00% $25,514 100.00%
======= ======= ======= =======
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The following table sets forth the maturity of the Bank's loan portfolio at
December 31, 1996. The table does not include prepayments. Prepayments
totaled $6.56 million and $6.67 million for the years ended December 31, 1996
and 1995, respectively. All loans are shown as based on contractual
maturities.
<TABLE>
<CAPTION>
1-4 Family Multi-family Commercial
Real Estate Real Estate and
Mortgages Mortgages Construction Agriculture Consumer Total
----------- ------------ ------------ ----------- -------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Nonaccrual $ 35 $ -- $ -- $ -- $ -- $ 35
--------- ----- ----- --------- -------- --------
Amounts Due:
Within 3 months $ 151 $ -- $ 100 $ -- $ 145 $ 396
3 months to 1 year 48 -- 120 537 157 862
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Total due within one year $ 199 $ -- $ 220 $ 537 $ 302 $ 1,258
--------- ----- ----- --------- -------- --------
After 1 year:
1 to 3 years $ 482 $ 8 $ -- $ 137 $ 696 $ 1,323
3 to 5 years 830 -- -- 411 815 2,056
5 to 10 years 5,690 -- -- 132 614 6,436
Over 10 years 21,509 218 -- 2,949 158 24,834
-------- ----- ----- --------- -------- --------
Total due after one year $ 28,511 $ 226 $ -- $ 3,629 $ 2,283 $ 34,649
Nonperforming -- -- -- -- -- --
-------- ----- ----- --------- -------- --------
Total amount due $ 28,745 $ 226 $ 220 $ 4,166 $ 2,585 $ 35,942
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Less:
Allowance for loan losses 415
Loans in process 168
Deferred loan fees and unearned discounts 94
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Loans receivable, net $ 35,265
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The following table sets forth the dollar amount of all loans due after
December 31, 1997 which have fixed interest rates and which have floating or
adjustable interest rates:
Floating or
Fixed-Rates Adjustable-Rates Total
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(In Thousands)
One- to four-family $19,827 $ 8,918 $28,745
Commercial and multi-family real estate 1,926 2,466 4,392
Construction 220 -- 220
Consumer 2,472 113 2,585
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Total $24,445 $11,497 $35,942
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One- to Four-Family Mortgages. Historically, the Bank's primary lending
activity consisted of the origination of one- to four-family, owner-occupied,
residential mortgage loans secured by property located in the Bank's primary
market area. Management believes that this policy of focusing on one- to
four-family lending has been effective in contributing to net interest income
while keeping loan delinquencies and losses to a minimum. The Bank purchases
mortgage loans (including participations) outside its market area to
supplement loan demand in its area. A majority of these loans are purchased
from a mortgage banker in Colorado and are secured by single family homes
(usually second homes) or condominiums located in the central Colorado
mountain resort areas.
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The Bank currently offers adjustable-rate mortgages that adjust every year and
have terms from 10 to 30 years, and fixed-rate mortgage loans with terms of
primarily 10 to 30 years. Adjustable rate loans originated prior to 1994 were
primarily based on the National Monthly Median Cost of Funds with a limit on
increases of 1% per year and 4% over the life of the loan. Beginning in 1994,
the Bank began basing all adjustable-rate loans primarily on the one year
Treasury Note Constant Maturities Index with a limit on increases of 2% per
year and 6% over the life of the loan. In 1995, the Bank began offering
mortgages with fixed rates for 3 and 5 year terms. The loans then convert to
fully indexed adjustable rate loans based on the one year Treasury Note
Constant Maturities index. The loans are popular with the borrowers in
Colorado purchasing second family homes. These loans are called 3-one's and
5-one's, respectively. The Bank considers the market factors and competitive
rates on loans as well as its own cost of funds when determining the rates on
the loans that it offers.
In 1991, the Bank began offering 15-year fixed-rate loans. This product
became popular and contributed to an increase in the originations since that
time. The Bank's residential mortgage lending also includes conventional
30-year fixed-rate loans, Federal Housing Administration ("FHA") loans,
Veterans Administration ("VA") loans, Farmers Home Administration ("FmHA")
loans, and State of Wyoming subsidized loans as well as adjustable-rate
mortgage loans. Conventional fixed-rate loans up to 15 years and
adjustable-rate mortgage loans are usually held in the Bank's portfolio. All
one- to four-family mortgage loans, other than adjustable-rate loans with
3-one and 5-one terms, and fixed rate loans with terms of 15 years or less,
are sold in the secondary market.
The Bank's origination of fixed-rate mortgage loans versus adjustable-rate
mortgage loans is determined on an on-going basis and is based on changes in
market interest rates and consumer preferences. The primary purpose of
offering adjustable-rate mortgage loans and 10- and 15-year fixed-rate loans
is to make the Bank's loan portfolio more interest rate sensitive. Generally,
during periods of rising interest rates, the risk of default on an
adjustable-rate mortgage is considered to be greater than the risk of default
on a fixed-rate loan due to the upward adjustment of interest costs to the
borrower. To help reduce such risk, the Bank qualifies the loan at 2% above
the fully-indexed rate, as opposed to the original interest rate. The Bank
does not originate adjustable-rate mortgage loans with negative amortization.
Regulations limit the amount which a savings association may lend in
relationship to the appraised value of the real estate securing the loan, as
determined by an appraisal at the time of loan origination. Such regulations
permit a maximum loan-to-value ratio of 100% for residential property and 90%
for all other real estate loans. The Bank's lending policies, however,
generally limit the maximum loan-to-value ratio to 80% of the appraised value
of the property, based on an independent appraisal. When the Bank makes a
loan in excess of 80% of the appraised value or purchase price, private
mortgage insurance is generally required for at least the amount of the loan
in excess of 80% of the appraised value. The Bank generally does not make
non-owner occupied one- to four-family loans in excess of 75% of the appraised
value. The loan-to-value ratio, maturity, and other provisions of the
residential real estate loans made by the Bank reflect the policy of making
loans generally below the maximum limits permitted under applicable
regulations.
One- to four-family residential real estate loans are normally originated for
the Bank's portfolio. In some cases, borrowers prepay their loans in full
upon the sale of the property pledged as security or upon refinancing the
original loan. In addition, substantially all of the mortgage loans in the
Bank's portfolio contain due-on-sale clauses providing that the Bank may
declare the unpaid amount due and payable upon the sale of the property
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securing the loan. Thus, average loan maturity is a function of, among other
factors, the level of purchase and sale activity in the real estate market,
prevailing interest rates, and the interest rates payable on outstanding
loans. As a result of the relatively small turnover in the population in the
Bank's local market area, the Bank believes that a high percentage of its
15-year loans will remain outstanding to contractual maturity.
Multi-Family and Commercial Real Estate Loans. In order to enhance the yield
on its assets, the Bank originates and participates with other financial
institutions in permanent loans secured by multi-family and commercial real
estate. These loans are originated in amounts up to 75% of the appraised
value of the property. Such appraised value is determined by an independent
appraiser. The Bank's multi-family and commercial real estate loans are
permanent loans secured by approved property such as apartments, small office
buildings, retail stores, small strip plazas, and other non-residential
buildings. The Bank originates multi-family and commercial real estate loans
with amortization periods of 15 to 25 years, primarily as adjustable rate
mortgages. As of December 31, 1996, the Bank had 21 multi-family and
commercial real estate loans totaling $4,163,000, or 11.8% of the Bank's loan
portfolio. Of the $4,163,000, $225,000 at December 31, 1996 involved loans
secured by multi-family real estate. At December 31, 1996, the largest
multi-family and commercial real estate loans had balances of $153,000
and $935,000, respectively. See "Origination, Purchase, and Sale of Loans"
and "-- Loans-to-One Borrower."
Loans secured by multi-family and commercial real estate generally involve a
greater degree of risk than residential mortgage loans and carry larger loan
balances. This increased credit risk is a result of several factors,
including the concentration of principal in a limited number of loans and
borrowers, the effects of general economic conditions on income producing
properties, and the increased difficulty of evaluating and monitoring these
types of loans. Furthermore, the repayment of loans secured by commercial
real estate is typically dependent upon the successful operation of the
related real estate project. If the cash flow from the project is reduced,
the borrower's ability to repay the loan may be impaired.
Commercial Business Loans. Regulations authorize the Bank to make secured or
unsecured loans for commercial, corporate, business, and agricultural
purposes. The aggregate amount of such loans outstanding may not exceed 10%
of the Bank's assets. As of December 31, 1996, the Bank had $228,000 in
commercial business loans outstanding.
Consumer Loans. The Bank views consumer lending as an important component of
its business operations because consumer loans generally have shorter terms
and higher yields, thus reducing exposure to changes in interest rates. In
addition, the Bank believes that offering consumer loans helps to expand
and create stronger ties to its customer base. Consequently, the Bank intends
to continue its strategy of consumer lending. Regulations permit
federally-chartered savings associations to make secured and unsecured
consumer loans up to 35% of the Bank's assets. In addition, the Bank has
lending authority above the 35% limit for certain consumer loans, such as home
improvement loans and loans secured by savings accounts. Credit card loans
and educational loans, if the Bank made them, do not count against this 35%
limit.
Consumer loans consist of savings account loans, home improvement loans, home
equity lines-of-credit, second mortgage loans, automobile loans, and personal
unsecured loans. As of December 31, 1996, these consumer loans totaled $2.59
million, or 7.19%, of the Bank's loan portfolio, $1.28 million or 3.56%
of which consisted of automobile loans. The Bank has actively sought consumer
loans within its market area, however, competition for such loans and the low
loan demand in the Bank's lending area effects the volume of such
originations. Consumer lending has permitted the Bank to obtain greater
yields and, at the same time, expose the institution to a smaller amount of
interest rate risk as most consumer loans do not extend beyond five years.
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The underwriting standards employed by the Bank for consumer loans include a
determination of the applicant's payment history on other debts and an
assessment of ability to meet existing obligations and payments on the
proposed loan. In addition, the stability of the applicant's monthly income
from primary employment is considered during the review process.
Creditworthiness of the applicant is of primary consideration; however, the
review process also includes a comparison of the value of the security in
relation to the proposed loan amount.
Consumer loans entail greater credit risk than do residential mortgage loans,
particularly in the case of consumer loans that are unsecured or secured by
assets that depreciate rapidly, such as automobiles, mobile homes, boats, and
recreational vehicles. In such cases, repossessed collateral for a defaulted
consumer loan may not provide an adequate source of repayment for the
outstanding loan and the remaining deficiency often does not warrant further
substantial collection efforts against the borrower. In particular, amounts
realizable on the sale of repossessed automobiles may be significantly reduced
based upon the condition of the automobiles and the lack of demand for used
automobiles. Further, consumer loan collections are dependent on the
borrower's continuing financial stability, and therefore are more likely to be
adversely affected by job loss, divorce, illness, or personal bankruptcy.
Finally, the application of various federal and state laws, including federal
and state bankruptcy and insolvency laws, may limit the amount which can be
recovered in the event of default. The Bank has a consumer loan loss
allowance, based on general economic conditions and prior loss experience. At
December 31, 1996, approximately $8,155 in consumer loans were more than 60
days delinquent. See "-- Origination, Purchase and Sale of Loans --
Nonperforming Assets" and "-- Classified Assets" for information regarding
the Bank's loan loss experience and reserve policy.
Loan Solicitation and Processing. The Bank's sources of mortgage loan
applications are referrals from existing or past customers and realtors,
walk-in customers, and advertising.
The loan approval process can take one of three forms. Loan officers at each
branch have authority to approve all loans up to $25,000. A staff loan
committee, consisting of senior officers of the Bank, can approve loans up to
$65,000. Any loan above the staff loan committee lending limit must be
submitted to the Loan Committee of the Board of Directors, which meets once a
week. The original lending officer presents the proposed loan at each of
these two committees. However, the original lending officer cannot vote on a
loan that the officer presents for approval. The Loan Committee of the Board
of Directors consists of at least three directors. All insider loans must be
approved by the majority of the Board with all interested directors abstaining
from voting. The Board of Directors ratifies all loans approved by officers
or committees.
In processing loans, the Bank utilizes forms, procedures, and requirements
that conform to those of the secondary market. This process provides the Bank
with the capability of selling loans not held in its loan portfolio and
management believes such efforts also enhance the value of the Bank's loan
portfolio.
The Bank uses fee appraisers on most real estate related transactions. It is
the Bank's policy to obtain title insurance on all real estate transactions
and to obtain flood (if applicable), fire, and casualty insurance on all loans
that require security.
Originated mortgage loans in the Bank's loan portfolio generally include
due-on-sale clauses which provide the Bank with the contractual right to deem
the loan immediately due and payable in the event that the borrower transfers
ownership of the property without the Bank's consent.
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Origination, Purchase, and Sale of Loans. The following table sets forth the
Bank's gross loan originations, purchases, sales, principal repayments of
loans, and loans held for sale for the periods indicated:
Year Ended December 31,
1996 1995
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(In Thousands)
Total gross loans receivable at beginning of period $26,359 $25,086
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Loans originated:
One- to four-family residential 4,145 3,896
Commercial real estate 460 25
Construction loans 846 530
Consumer loans 1,499 2,676
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Total loans originated $ 6,950 $ 7,127
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Loans purchased:
One to four family residential 6,672 2,157
Commercial real estate, other residential 3,550 --
Commercial - other 749 --
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Total loans purchased $10,971 $ 2,157
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Loans sold:
Whole loans $(1,780) $(1,345)
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Total loans sold $(1,780) $(1,345)
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Loans transferred and principal payments:
Loans transferred (to) from:
Real estate owned $ ( 18) $ (207)
Investment and advance to joint venture --
Loan principal payments (6,540) (6,459)
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Total loans transferred and principal payments $(6,558) $(6,666)
------- -------
Net increase (decrease) in loan activity $ 9,583 $ 1,273
------- -------
Total gross loans receivable and at end of period $35,942 $26,359
======= =======
The Bank's purchases in the secondary market are dependent upon the demand for
mortgage credit in the local market area and the inflow of funds from
traditional sources. Purchases of loans enable the Bank to utilize available
funds more quickly and to obtain a yield higher than could generally be
obtained in the alternative investment vehicles. The purchase of such loans
is part of the Bank's strategy to make its overall loan portfolio more
sensitive to current market conditions and interest rates.
The Bank purchases residential first mortgage ARM loans that meet the Bank's
underwriting standards, which generally follow FHLMC and FNMA guidelines,
except that the Bank will generally purchase loans up to $500,000, which
exceeds the limit up to which FHLMC and FNMA may purchase loans. The majority
of these loans purchased are sold by the seller without recourse. It is the
Bank's policy not to purchase loan packages secured by a concentration of
properties in a single subdivision or condominium project.
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The Bank reviews each purchased loan as if it were originating the loan
according to its underwriting standards. All loans must be documented,
including an original appraisal that substantiates the value of the subject
property at the time of origination of the loan. The Bank obtains from the
seller a duplicate copy of each original loan file, which generally includes
an executed loan application and mortgage note, financial statements and
credit reports of the borrower, appraisal and title insurance. The Bank may
purchase a qualifying loan up to $500,000 with a loan-to-value ratio of up to
80% based on the original appraisal of the property.
The Bank purchases only ARM loans with interest rates that adjust on a
monthly, semi-annual and annual basis. Currently, all purchased ARM loans
adjust annually. Most of the ARMs are indexed to interest rates at a margin
of 288 basis points above a recognized index, usually the one year Treasury
Note Constant Maturities Index. This cost of funds index generally lags the
current market interest rates. The Bank does not purchase loans that provide
for negative amortization.
Most of the loans purchased are secured by real estate located outside of
Wyoming, including Colorado, Idaho and New Mexico. At December 31, 1996, the
Bank's purchased loan portfolio and participation loans totaled $12.3 million,
or 34.96% of the loan portfolio. Of the purchased loan portfolio at December
31, 1996, $8.9 million are Colorado loans.
The sale of loans is generally limited to fixed-rate mortgage loans with
maturities greater than 15 years and government guaranteed loans. All
adjustable-rate loans are held in the loan portfolio. The Bank presently
sells individual loans to a mortgage banking company and to the Wyoming
Community Development Authority, with servicing released. The loans are sold
on a non-recourse basis. Mortgage loans are primarily made with standard
forms and documentation to allow for future sale in the secondary market.
Loan and Rate Commitments. At the customer's request, the Bank will commit to
an interest rate for up to 60 days to prospective borrowers upon receipt of a
mortgage loan application. As such, the Bank is exposed to a 60 day
fluctuation on mortgage applications only for loans originated for its
portfolio. In addition, loan commitments, which are generally written, are
not made until the loan is approved in accordance with the Bank's loan
underwriting policy. At December 31, 1996, the Bank had $637,000 of loan
commitments to originate mortgage loans.
Loan Servicing. As of December 31, 1996, loans serviced for others totaled
$172,000. This servicing was generated more than five years ago, and fee
income from these loans is not significant.
Loans-to-One Borrower. Current regulations limit loans-to-one borrower in an
amount equal to 15% of unimpaired capital and unimpaired surplus on an
unsecured basis and an additional amount equal to 10% of unimpaired capital
and unimpaired surplus if the loan is secured by readily marketable collateral
(generally, financial instruments, not real estate) or $500,000, whichever is
higher. Penalties for violations of the loan-to-one borrower statutory and
regulatory restrictions include cease and desist orders, the imposition of a
supervisory agreement, and civil money penalties. The Bank's maximum
loan-to-one borrower limit was approximately $1.6 million as of December 31,
1996.
At December 31, 1996, the Bank's five largest aggregate lending relationships
had balances ranging from $1,147,000 to $466,000 with an average balance of
$740,000. All five of these lending relationships involved loans purchased in
1996 and are secured by commercial real estate and single family residences in
New Mexico, Colorado, and Idaho. At December 31, 1996, all of these loans
were current.
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Loan Delinquencies. The Bank's collection procedures provide that when a
mortgage loan is past due, a telephone call is made to the borrower within 30
days. If the delinquency continues, subsequent efforts are made to eliminate
the delinquency. If the loan continues in a delinquent status for 90 days or
more, management initiates foreclosure proceedings unless other repayment
arrangements are made. Collection procedures for non-mortgage loans generally
begin after a loan is 30 days delinquent.
Loans are reviewed on a regular basis and are generally placed on a
non-accrual status when the loan becomes 90 days delinquent and, in the
opinion of management, the collection of additional interest is doubtful.
Interest accrued and unpaid at the time a loan is placed on non-accrual status
is charged against interest income.
The following table sets forth the types and dollar amounts of the Bank's
loans which are more than 60 days delinquent at the dates indicated:
At December 31,
1996 1995
---------- ----------
(In Thousands)
Residential mortgage loans $74 $50
Commercial and multi-family real estate loans 0 --
Consumer loans 4 10
The $74,000 of delinquent residential mortgage loans at December 31, 1995
consisted of 6 loans with an average balance of $12,000, the largest having a
outstanding principal balance of $34,000. There were no commercial or
multi-family real estate loans delinquent 60 days or more at December 31,
1996.
Nonperforming Assets. The following table sets forth information regarding
non-accrual loans, real estate owned, and other repossessed assets. At
December 31, 1996 the Bank had no loans which were considered troubled debt
restructurings within the meaning of SFAS No. 15.
At December 31,
1996 1995
---------- ----------
(Dollars in Thousands)
Loans accounted for on a non-accrual basis:
Mortgage loans:
Permanent loans secured by 1-4 dwelling units $ 35 $ 18
All other mortgage loans 0 --
---- ----
Total $ 35 $ 18
==== ====
Accruing consumer loans which are
contractually past due 90 days or more 0 $ --
==== ====
Total nonperforming $ 35 $ 18
==== ====
Real estate owned, net $ 18 $205
==== ====
Total nonperforming assets $ 53 $223
==== ====
Total nonperforming loans to net loans 0.10% 0.07%
==== ====
Total nonperforming loans to total assets 0.04% 0.02%
==== ====
Total nonperforming assets to total assets 0.06% 0.34%
==== ====
-11-
<PAGE>
<PAGE>
Interest income not recorded on loans accounted for on a non-accrual basis
under the original terms of such loans was $4,000 and $1,000 for the years
ended December 31, 1996 and 1995, respectively. The Bank did not include any
interest income on non-accrual loans during the periods indicated. It is the
Bank's general policy to accrue interest only on loans less than 91 days
delinquent. Once loans are 91 days delinquent, the Bank reverses previously
accrued but unpaid interest.
Classified Assets. OTS regulations provide for a classification system for
problem assets of insured institutions which covers all problem assets,
including assets that previously had been treated as "scheduled items." Under
this classification system, problem assets of insured institutions are
classified as "substandard," "doubtful," or "loss." An asset is considered
substandard if it is inadequately protected by the current net worth and
paying capacity of the obligor or of the collateral pledged, if any.
Substandard assets include those characterized by the "distinct possibility"
that the insured institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as doubtful have all of the weaknesses
inherent in those classified substandard, with the added characteristic that
the weaknesses present make "collection or liquidation in full," on the basis
of currently existing facts, conditions and values, "highly questionable and
improbable." Assets classified as loss are those considered "uncollectible"
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted. Assets designated
"special mention" by management are assets included on the Bank's internal
watchlist because of potential weakness but which do not currently warrant
classification in one of the aforementioned categories.
When an insured institution classifies problem assets as either substandard or
doubtful, it may establish general allowances for loan losses in an amount
deemed prudent by management. General allowances represent loss allowances
which have been established to recognize the inherent risk associated with
lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When an insured institution
classifies problem assets as loss, it is required either to establish a
specific allowance for losses equal to 100% of that portion of the asset so
classified or to charge-off such amount. An institution's determination as to
the classification of its assets and the amount of its valuation allowances is
subject to review by the OTS, which may order the establishment of additional
general or specific loss allowances. A portion of general loss allowances
established to cover possible losses related to assets classified as
substandard or doubtful may be included in determining an institution's
regulatory capital, while specific valuation allowances for loan losses
generally do not qualify as regulatory capital.
At December 31,
1996 1995
---------- ----------
(In Thousands)
Special mention assets $ 67 $153
==== ====
Classified Assets:
Substandard $ 99 $313
Doubtful -- --
Loss -- 20
---- ----
Total $ 99 $333
==== ====
Real Estate Owned. Real estate acquired by the Bank as a result of
foreclosure or by deed-in-lieu of foreclosure is classified as real estate
owned until it is sold. When property is acquired it is recorded at the lower
of the cost or fair value less estimated costs to sell. Valuations are
periodically performed by management and subsequent charges to income are
taken when it is determined that the carrying value of the property exceeds
the fair value less estimated costs to sell.
-12-
<PAGE>
<PAGE>
The Bank records loans as in-substance foreclosures if the borrower has little
or no equity in the property based upon its documented current fair value and
if the borrower has effectively abandoned control of the collateral or has
continued to retain control of the collateral but because of the current
financial status of the borrower it is doubtful the borrower will be able to
repay the loan in the foreseeable future. In-substance foreclosures are
accounted for as real estate acquired through foreclosure, however, title to
the collateral has not been acquired by the Bank. There may be significant
other expenses incurred such as attorney and other extraordinary servicing
costs involved with in-substance foreclosures. At December 31, 1996, the Bank
did not have any loans classified as an in-substance foreclosure.
The Bank held real estate owned with a net balance of $18,000 at December 31,
1996, which consisted of two properties. The properties consist of a tract of
undeveloped one-to-four-family residential lots and a single family dwelling.
Allowance for Loan and Real Estate Losses. It is management's policy to
provide for losses on unidentified loans in its loan portfolio and foreclosed
real estate. A provision for loan losses is charged to operations based on
management's evaluation of the potential losses that may be incurred in the
Bank's loan portfolio after management has evaluated a number of factors,
including, historical experience, the volume and type of lending conducted by
the Bank, industry standards, the amount of nonperforming assets, current
general economic conditions as they relate to the Bank's loan portfolio, and
other factors related to the collectibility of the Bank's loan portfolio.
Such evaluation, which includes a review of all loans of which full
collectibility of interest and principal may not be reasonably assured,
considers, among other matters, the estimated net realizable value of the
underlying collateral. Management intends to review the adequacy of its level
of loan reserves quarterly. During the years ended December 31, 1996 and
1995, the Bank made no provision for loan losses and no provisions for losses
on real estate owned and other repossessed assets.
-13-
<PAGE>
<PAGE>
The following table sets forth information with respect to the Bank's
allowance for loan losses at the dates indicated:
At December 31,
1996 1995
---------- ----------
(Dollars in Thousands)
Total loans outstanding(1) $35,771 $26,022
======= =======
Average loans outstanding 31,815 25,409
======= =======
Allowance for loan losses (at beginning of period) 424 443
Provision for loan losses (credit):
Residential -- --
Commercial real estate -- --
Consumer(1) -- --
Net charge-offs:
Residential 4
Commercial real estate -- 20
Consumer 5 --
Net recoveries:
Residential -- 1
------- -------
Allowance for loan losses (at end of period) $ 415 $ 424
======= =======
Allowance for loan losses as a
percent of total loans outstanding 1.16% 1.63%
Net loans charged-off as a percent of
average loans outstanding 0.03% 0.07%
Allowance for loan losses as a percent of
nonperforming loans 1,185.71% 2,355.56%
- -----------------------
(1) Includes all loans receivable and loans held for sale, adjusted for
deferred loan fees, unearned discounts, and undisbursed loans in process.
(2) Less than 0.01%.
The following table sets forth, for the periods indicated general and
specific loss allowances and, charge-offs related to loans, real estate owned,
and other repossessed assets:
At December 31,
1996 1995
---------- ----------
(In Thousands)
General loss allowances $415 $424
Specific loss allowances 32 32
Charge-offs 9 20
Recoveries -- 1
-14-
<PAGE>
<PAGE>
Management will continue to review the entire loan portfolio to determine the
extent, if any, to which further additional loss provisions may be deemed
necessary. There can be no assurance that the allowance for losses will be
adequate to cover losses which may be realized in the future and that
additional provisions for losses will not be required.
The following table sets forth information with respect to the Bank's
allowance for losses on real estate owned and other repossessed assets at the
dates indicated:
At or for the year ended
December 31,
1996 1995
---------- ----------
(Dollars in Thousands)
Total real estate owned and in judgment $ 50 $ 237
===== =====
Allowance balances - beginning $ 32 $ 32
Provision -- --
Charge-offs -- --
Recoveries -- --
----- -----
Allowance balances - ending $ 32 $ 32
===== =====
Allowance for losses on real estate owned and
in judgment to net real estate owned and
in judgment 64.00% 13.50%
===== =====
Interest-Bearing Accounts
At December 31, 1996, the Bank held $1,751,000 in interest-bearing demand
deposits in other financial institutions principally with the FHLB of Seattle.
The Bank maintains these accounts in order to maintain liquidity and improve
the interest-rate sensitivity of its assets.
Mortgage-backed Securities and Investment Activities
General. The Bank is required under federal regulations to maintain a minimum
amount of liquid assets which may be invested in specified short-term
securities and certain other investments. See "Regulation -- Federal Home
Loan Bank System." Federally chartered savings institutions have the
authority to invest in various types of liquid assets, including U.S. treasury
obligations, securities of various federal agencies, certain certificates of
deposit of insured banks and savings institutions, certain bankers'
acceptances, repurchase agreements, and federal funds. Subject to various
restrictions, federally chartered savings institutions may also invest their
assets in commercial paper, investment grade corporate debt securities, and
mutual funds whose assets conform to the investments that a federally
chartered savings institution is otherwise authorized to make directly.
The investment policy of the Bank was approved by the Board of Directors and
is implemented by the Investment/Asset Liability Management Committee, which
consists of the president, the controller, and the senior lending officer.
The controller of the Bank serves as the investment manager. Generally, the
investment policy of the Bank is to invest funds among various categories of
investments and to select maturities based on the Bank's asset/liability
management policies, concern for highest investment quality, liquidity needs,
-15-
<PAGE>
<PAGE>
and performance objectives. The investment activities of the Bank consist
primarily of mortgage-backed securities and other securities, consisting
primarily of securities issued or guaranteed by the U.S. government or
agencies thereof. Investments are made with the intent and ability to hold
them to maturity, and the Bank's portfolio of mortgage-backed securities and
other investments is accounted for on an amortized cost basis. The Bank has a
policy of holding securities until maturity.
The Bank has generally maintained a liquidity portfolio well in excess of
regulatory requirements. Liquidity levels may be increased or decreased
depending upon the yields on investment alternatives and upon management's
judgment as to the attractiveness of the yields then available in relation to
other opportunities and its expectation of future yield levels, as well as
management's projections as to the short-term demand for funds to be used in
the Bank's loan origination and other activities. At December 31, 1996, the
Bank had an investment portfolio of approximately $19.85 million, consisting
primarily of open-end mutual funds and obligations of the United States as
permitted by the OTS regulations. The open-end mutual funds consist of a
mortgage-securities performance portfolio and an adjustable-rate mortgage
portfolio. Since the mid-1980s, the Bank has emphasized investments in
instruments with maturities or duration within one to five years. The market
value of investments and mortgage-backed securities at December 31, 1996, were
$20.24 million and $25.49 million, resulting in a gross unrealized gain at
such date of approximately $390,000 and $243,000, respectively. The Bank
anticipates having the ability to fund all of its investing activities from
funds held on deposit at FHLB of Seattle supplemented with advances from the
FHLB of Seattle. The Bank will continue to seek high quality investments with
short to intermediate maturities and durations from one to five years.
In 1995, the Board of the Bank and management made a decision to increase its
investment activities to utilize the credit capacity of the Bank, and its
excess liquidity. The result of this change has been to add investments in
adjustable rate mortgage backed securities financed with advances from the
FHLB of Seattle. The maturity of the advance is closely matched with the
interest rate adjustment on the mortgage backed security. This has allowed
the Bank to increase net interest income with little increase in interest rate
risk. The intent is to maintain this portfolio and increase the balances when
opportunities to make a reasonable spread on the investment are available.
The Bank has used two different advisors in this strategy neither of which is
a securities broker.
Mortgage-Backed Securities Portfolio. At December 31, 1996, the amortized
cost of the mortgage-backed securities totaled $25.25 million, or 29.40%, of
total assets which consisted of FHLMC pass-through securities, GNMA ARMs, and
CMO's. The market value of such securities totaled approximately $25.49
million, at December 31, 1996, resulting in a gross unrealized gain at such
date of $244,000.
Mortgage-backed securities represent a participation interest in a pool of
mortgages, the principal and interest payments on which are passed from the
mortgage originators, through intermediaries (generally quasi-governmental
agencies) that pool and repackage the participation interests in the form of
securities, to investors such as the Bank. Such quasi-governmental agencies
guarantee the payment of principal and interest to investors.
FHLMC is a corporation chartered by the U.S. government and owned by the 12
FHLBs and federally insured savings institutions. FHLMC issues participation
certificates backed principally by conventional mortgage loans. FHLMC
guarantees the timely payment of interest and the ultimate return of principal
within one year. FHLMC securities are indirect obligations of the U.S.
Government.
-16-
<PAGE>
<PAGE>
Mortgage-backed securities typically are issued with stated principal amounts,
and the securities are backed by pools of mortgages that have loans with
interest rates that are within a range and have varying maturities. The
underlying pool of mortgages can be composed of either fixed-rate mortgages or
adjustable-rate mortgage loans. Mortgage-backed securities are generally
referred to as mortgage participation certificates or pass-through
certificates. As a result, the interest rate risk characteristics of
the underlying pool of mortgages (i.e., fixed rate or adjustable rate) as well
as prepayment risk, are passed on to the certificate holder. The life of a
mortgage-backed pass-through security is equal to the life of the underlying
mortgages.
Investment Portfolio. The following table sets forth the carrying value of
the Bank's investment securities portfolio, short-term investments, FHLB
stock, and mortgage-backed securities at the date indicated. At December 31,
1996, the market value of the Bank's investment securities portfolio were
$45.73 million. The market value is equal to the carrying value for
interest-bearing deposits and FHLB stock and is not included in the preceding
market valuation.
At December 31,
1996 1995
---------- ----------
(In Thousands)
Investment securities:
Held to maturity $ 1,006 $ 7,008
Available for sale 19,208 13,100
------- -------
Total investment securities 20,214 20,108
Interest-bearing deposits 1,751 558
FHLB stock 1,253 1,160
Mortgage-backed securities held to maturity 9,314 11,255
Mortgage-backed securities available for sale 15,932 4,997
------- -------
Total investments $48,464 $38,078
======= =======
____________________
(1) Other securities include FHLMC stock and open-end mutual funds.
-17-
<PAGE>
<PAGE>
Investment and Mortgage-backed Portfolio Maturities. The following table sets
forth certain information regarding the carrying values, weighted average
yields and maturities of the Bank's investment and mortgage-backed securities
portfolios (including those held to maturity and held for sale).
<TABLE>
<CAPTION>
At December 31, 1996
----------------------------------------------------------------------------------------------------
One Year or Less One to Five Years Five to Ten Years More Than Ten Years Total Investment Securities
---------------- ----------------- ----------------- ------------------- ----------------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market
Value Yield Value Yield Value Yield Value Yield Value Yield Value
-------- ------- -------- ------- -------- ------- -------- ------- -------- ------- -------
(Dollars in Thousands, including rates thereto)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. agency obligations:
Held to Maturity $ 501 6.99% $ 505 8.35% $ -- --% $ -- --% $ 1,006 7.63% $ 1,033
Available for Sale 929 6.84% 6,976 6.27% 1,016 7.47% -- --% 8,921 6.46% 8,921
Mortgage-backed
Securities(1):
Held for Maturity 195 9.39% 2,909 6.11% 139 9.01% 6,071 8.05% 9,314 7.48% 9,556
Available for sale -- -- -- -- -- -- 15,932 6.56% 15,932 6.56% 15,932
FHLB Stock(2) N/A N/A N/A N/A N/A N/A N/A N/A 1,253 N/A 1,253
FHLMC Stock(2) N/A N/A N/A N/A N/A N/A N/A N/A 723 N/A 723
AMF Funds-Adjustable Rate
Mortgage Portfolio(2)(3) N/A N/A N/A N/A N/A N/A N/A N/A 1,130 6.03% 1,130
AMF Funds - Mortgage
Securities Performance
Portfolio(2)(3) N/A N/A N/A N/A N/A N/A N/A N/A 8,433 6.72% 8,433
------- ----- ------- ----- ---------- ----- -------- ----- ------- ----- -------
Total $ 1,625 7.19% $10,390 6.33% $ 1,155 7.66% $ 22,003 6.97% $46,343 6.77% $46,981
======= ===== ======= ===== ========== ===== ======== ===== ======= ===== =======
</TABLE>
___________________________
(1) Included unamortized premiums of $30,000 at December 31, 1996.
(2) Amounts are only included in total columns because these investments do
not have stated maturities.
(3) Asset Management Funds for Financial Institutions ("AMF") is an open-end
management company registered under the Investment Company Act of 1940,
as amended. AMF consists of five separate portfolios, two in which the
Bank invests. AMF invests in various securities that federal savings and
loan associations can invest in directly. Shay Assets Management Co.
serves as AMF's investment advisor.
-18-
<PAGE>
<PAGE>
Sources of Funds
General. Deposits are the major source of the Bank's funds for lending and
other investment purposes. The Bank derives funds from amortization and
prepayment of loans and mortgage-backed securities, maturities of investment
securities, and operations. Scheduled loan principal repayments are a
relatively stable source of funds, while deposit inflows and outflows and loan
prepayments are significantly influenced by general rates of interest and
market conditions. The Bank may also utilize advances from the FHLB of
Seattle and other borrowing as a source of funds.
Deposits. Consumer and commercial deposits are attracted principally from
within the Bank's primary market area through the offering of a broad
selection of deposit instruments including regular savings, money market
deposits, term certificate accounts (including jumbo certificates in
denominations of $99,000 or more), and individual retirement accounts.
Deposit account terms vary according to the minimum balance required, the time
period the funds must remain on deposit, and the interest rate, among
other factors. The Bank does not obtain funds through brokers, nor does it
actively solicit funds outside of the State of Wyoming.
The interest rates paid by the Bank on deposits can be set daily at the
direction of management and are determined by evaluating the following
factors: (i) the interest rates offered by other local savings institutions,
and the degree of competition the Bank wishes to maintain; (ii) the Bank's
anticipated need for cash and the timing of that desired cash flow; (iii) the
cost of borrowing from other sources versus the cost of acquiring funds
through customer deposits; and (iv) the Bank's anticipation of future economic
conditions and related interest rates. The Bank has not used above-market
rates in recent years to attract deposits.
Regular savings, NOW accounts, and money market accounts constituted $12.57
million, or 26.00% of the Bank's deposit portfolio at December 31, 1996.
Certificates of deposit with original maturities of three to 12 months
constituted $15.40 million or 31.73% of the deposit portfolio. Jumbo
certificates of deposit, with principal amounts of $99,000 or more,
constituted $5.68 million or 11.70% of the portfolio at December 31, 1996. Of
that amount, $1.32 million was deposits of the State of Wyoming for which the
Bank pledged a $3.00 million Federal Home Loan Bank (FHLB) debenture.
Upon maturity, certificates of deposit holders are given a seven-day grace
period to instruct the Bank on their investment. Upon expiration of the grace
period, and if no action has been taken by the holder, the certificate of
deposit, except for negotiated certificates, is automatically rolled-over and
paid the current rate in effect at maturity for certificates of the same
maturity. The length of maturity remains the same.
-19-
<PAGE>
<PAGE>
The following table sets forth the time deposits in the Bank classified by
rates as of the dates indicated.
At December 31,
1996 1995
----------- ----------
Interest Rate (In Thousands)
- -------------
3.01-4.00% $ 513 $ 114
4.01-5.00% 11,111 6,238
5.01-6.00% 23,224 25,600
6.01-7.00% 1,073 1,438
7.01-8.00% 45 45
------- -------
Total $35,966 $33,435
======= =======
The following table sets forth the amount and maturities of time deposits at
December 31, 1996.
Amount Due
--------------------------------------------------------------
After
December 31, December 31, December 31, December 31,
Interest Rate 1997 1998 1999 1999 Total
- ------------- ------------ ------------ ------------ ------------ ----------
(In Thousands)
3.01-4.00% $ 513 $ -- $-- $ -- $ 513
4.01-5.00% 10,979 132 -- -- 11,111
5.01-6.00% 18,001 4,289 545 389 23,224
6.01-7.00% 800 -- 273 -- 1,073
7.01-8.00% 45 -- -- -- 45
------- ------ ---- ---- -------
Total $30,338 $4,421 $818 $389 $35,966
======= ====== ==== ==== =======
The following table indicates the amount of the Bank's certificate accounts of
$100,000 or more by time remaining until maturity as of December 31, 1996.
Maturity Period Balances
- --------------- --------
(In Thousands)
Three months or less $1,529
Over three through six months 3,086
Over six through twelve months 2,871
Over twelve months 211
------
Total $7,697
======
Borrowings
As a member of the FHLB of Seattle, the Bank has access to its advance program
and other credit products. At December 31, 1996, the Bank had $23.46 million
borrowings outstanding from the FHLB. As of and for the year ended December
31, 1996, the Bank had no other borrowings. The Bank matches FHLB advances
with mortgage-backed securities with similar maturity to take advantage of the
difference (or spread) between the rate paid on the advances and the yield on
the securities. The following table sets forth certain information as the
Bank's FHLB advances at the dates indicated.
-20-
<PAGE>
<PAGE>
As of and for the Years Ended
1996 1995
-------- --------
(Dollars in Thousands)
Maximum balance $23,460 $7,000
Average balance 17,629 4,625
Balance at end of period 23,460 7,000
Weighted average rate:
at end of period 5.52% 5.95%
during the period 5.35% 5.58%
Subsidiary Activity
In September 1993, the Company acquired all of the capital stock of the Bank.
The officers of the Company consist of the officers of the Bank. The Company
is organized as a savings and loan holding company. As of December 31, 1996,
the net book value of the Company's investment in the Bank amounted to $11.25
million.
The Bank has one wholly-owned subsidiary corporation, First Tri-County
Service, Inc. ("FTCS"). FTCS was incorporated in the State of Wyoming in
August 1982 and is engaged in the sale of life, credit life, and disability
insurance. The Bank is permitted to invest up to 2% of its assets in the
capital stock of, or secured or unsecured loans to, subsidiary corporations,
with an additional investment of 1% of assets when such additional investment
is utilized primarily for community development purposes. Based upon the 2%
limitation, as of December 31, 1996, the Bank was authorized to invest up to
approximately $1.70 million in the stock of service corporations. As of
December 31, 1996, the net book value of the Bank's investment in stock,
unsecured loans, and conforming loans in its service corporation was $14,000.
The Bank is a 50% partner in a joint venture named Douglas Venture. This
asset was obtained as part of a settlement of a loan on an office building in
Douglas, Wyoming. The Bank took a deed-in-lieu of foreclosure and obtained an
interest in Douglas Venture in 1992. The Bank will maintain its interest in
the venture until the loan deficiency is recovered. When recovery of the
deficiency is made, ownership of Douglas Venture will revert back to the
original owners. The Bank made an investment of approximately $15,000 in the
joint venture in order to pay a contribution deficiency. The joint venture
owns the building that a discount store is located in and a small strip
shopping center. At December 31, 1996, the rents on the buildings were
covering the cash flow requirements of the joint venture as well as paying a
small return to the Bank.
Employees
Substantially, all of the activities of the Company are conducted through the
Bank, therefore at December 31, 1996, the Company did not have any salaried
employees. As of December 31, 1996, the Bank had 17 full-time employees and
two part-time employees. None of the Bank's employees are represented by a
collective bargaining group. The Bank believes that its relationship with its
employees is good.
-21-
<PAGE>
<PAGE>
Regulation
Set forth below is a brief description of certain laws which related to the
regulation of the Company and the Bank. The description does not purport to
be complete and is qualified in its entirety by reference to applicable laws
and regulations.
Company Regulation
General. The Company is a unitary savings and loan holding company subject to
regulatory oversight by the OTS. As such, the Company is required to register
and file reports with the OTS and is subject to regulation and examination by
the OTS. In addition, the OTS has enforcement authority over the Company and
its non-savings association subsidiaries, should such subsidiaries be formed,
which also permits the OTS to restrict or prohibit activities that are
determined to be a serious risk to the subsidiary savings association. This
regulation and oversight is intended primarily for the protection of the
depositors of the Bank and not for the benefit of stockholders of the Company.
Qualified Thrift Lender Test. As a unitary savings and loan holding company,
the Company generally is not subject to activity restrictions, provided the
Bank satisfies the Qualified Thrift Lender ("QTL") test. If the Company
acquires control of another savings association as a separate subsidiary, it
would become a multiple savings and loan holding company, and the activities
of the Company and any of its subsidiaries (other than the Bank or any other
SAIF-insured savings association) would become subject to restrictions
applicable to bank holding companies unless such other associations each also
qualify as a QTL and were acquired in a supervisory acquisition. See "--
Regulation of the Bank -- Qualified Thrift Lender Test."
Restrictions on Acquisitions. The Company must obtain approval from the OTS
before acquiring control of any other SAIF-insured association. Such
acquisitions are generally prohibited if they result in a multiple savings and
loan holding company controlling savings associations in more than one state.
However, such interstate acquisitions are permitted based on specific state
authorization or in a supervisory acquisition of a failing savings
association.
Federal law generally provides that no "person," acting directly or indirectly
or through or in concert with one or more other persons, may acquire
"control," as that term is defined in OTS regulations, of a federally insured
savings institution without giving at least 60 days written notice to the OTS
and providing the OTS an opportunity to disapprove the proposed acquisition.
Such acquisitions of control may be disapproved if it is determined, among
other things, that (i) the acquisition would substantially lessen competition;
(ii) the financial condition of the acquiring person might jeopardize the
financial stability of the savings institution or prejudice the interests of
its depositors; or (iii) the competency, experience or integrity of the
acquiring person or the proposed management personnel indicates that it would
not be in the interest of the depositors or the public to permit the
acquisitions of control by such person.
Subject to appropriate regulatory approvals, a bank holding company can
acquire control of a savings association, and if it controls a savings
association, merge or consolidate the assets and liabilities of the savings
association with, or transfer assets and liabilities to, any subsidiary bank
which is a member of the BIF with the approval of the appropriate federal
banking agency and the Federal Reserve Board. Generally, federal savings
associations can acquire or be acquired by any insured depository institution.
-22-
<PAGE>
<PAGE>
Federal Securities Law. The Company is subject to filing and reporting
requirement by virtue of having its common stock registered under the
Securities Exchange Act of 1934. Furthermore, company stock held by persons
who are affiliates (generally officers, directors and principal stockholders)
of the Company may not be resold without registration or unless sold in
accordance with certain resale restrictions. If the Company meets specified
current public information requirements, each affiliate of the Company is able
to sell in the public market, without registration, a limited number of shares
in any three-month period.
Regulation of the Bank
General. As a federally chartered, SAIF-insured savings association, the Bank
is subject to extensive regulation by the OTS and the FDIC. Lending
activities and other investments must comply with various federal statutory
and regulatory requirements. The Bank is also subject to certain reserve
requirements promulgated by the Federal Reserve Board.
The OTS, in conjunction with the FDIC, regularly examines the Bank and
prepares reports for the consideration of the Bank's Board of Directors on any
deficiencies that are found in the Bank's operations. The Bank's relationship
with its depositors and borrowers is also regulated to a great extent by
federal and state law, especially in such matters as the ownership of savings
accounts and the form and content of the Bank's mortgage documents.
The Bank must file reports with the OTS and the FDIC concerning its activities
and financial condition, in addition to obtaining regulatory approvals prior
to entering into certain transactions such as mergers with or acquisitions of
other savings institutions. This regulation and supervision establishes a
comprehensive framework of activities in which an institution can engage and
is intended primarily for the protection of the SAIF and depositors. The
regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes. Any change in such regulations, whether by the OTS, the FDIC, or
the Congress could have a material adverse impact on the Company, the Bank,
and their operations.
Insurance of Deposit Accounts. The Bank's deposit accounts are insured by the
SAIF to a maximum of $100,000 for each insured member (as defined by law and
regulation). The FDIC has the authority, should it initiate proceedings to
terminate an institution's deposit insurance, to suspend the insurance of any
such institution without tangible capital. However, if a savings association
has positive capital when it includes qualifying intangible assets, the FDIC
cannot suspend deposit insurance unless capital declines materially, the
institution fails to enter into and remain in compliance with an approved
capital plan or the institution is operating in an unsafe or unsound manner.
Regardless of an institution's capital level, insurance of deposits may be
terminated by the FDIC upon a finding that the institution has engaged in
unsafe or unsound practices, is in an unsafe or unsound condition to continue
operations or has violated any applicable law, regulation, rule, order or
condition imposed by the FDIC or the institution's primary regulator.
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<PAGE>
The FDIC charges an annual assessment for the insurance of deposits based on
the risk a particular institution poses to its deposit insurance fund. Under
this system, a bank or thrift pays within a range of 0 cents to 27 cents per
$100 of domestic deposits, depending upon the institution's risk
classification. This risk classification is based on an institution's capital
group and supervisory subgroup assignment. In addition, the FDIC is
authorized to increase such deposit insurance rates, on a semi-annual basis,
if it determines that such action is necessary to cause the balance in the
SAIF to reach the designated reserve ratio of 1.25% of SAIF-insured deposits
within a reasonable period of time. The FDIC also may impose special
assessments on SAIF members to repay amounts borrowed from the U.S. Treasury
or for any other reason deemed necessary by the FDIC. The Bank's federal
deposit insurance premium expense for the fiscal year ended December 31, 1996,
amounted to approximately $97,894.
The Bank paid a one-time assessment of $304,606. The assessment was applied
to the Bank's deposits at March 31, 1995. This resulted in a one time cost of
approximately $201,000 (net of taxes). Future deposit insurance premiums will
be reduced. Based upon the Bank's deposits as of December 31, 1996, the
Bank's deposit insurance expense should decrease by approximately $63,000 per
year after taxes.
Regulatory Capital Requirements. OTS capital regulations require savings
institutions to meet three capital standards: (1) tangible capital equal to
1.5% of total adjusted assets, (2) a leverage ratio (core capital) equal to at
least 3% of total adjusted assets, and (3) a risk-based capital requirement
equal to 8.0% of total risk-weighted assets.
Savings associations with a greater than "normal" level of interest rate
exposure will, in the future, be subject to a deduction for an interest rate
risk ("IRR") component may be from capital for purposes of calculating their
risk-based capital requirement. See "-- Net Portfolio Value."
As shown below, the Bank's regulatory capital exceeded all minimum regulatory
capital requirements applicable to it as of December 31, 1996:
Percent of
Amount Adjusted Assets
-------- ---------------
(Dollars in Thousands)
Tangible Capital:
Regulatory requirement $ 1,270 1.50%
Actual capital 10,740 12.68%
-------- ------
Excess $ 9,470 11.18%
======== ======
Core Capital:
Regulatory requirement $ 2,540 3.00%
Actual capital 10,740 12.68%
-------- ------
Excess $ 8,200 9.68%
======== ======
Risk-Based Capital:
Regulatory requirement $ 2,592 8.00%
Actual capital 11,145 34.40%
-------- ------
Excess $ 8,553 26.40%
======== ======
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<PAGE>
Net Portfolio Value. The OTS requires the computation of amounts by which the
net present value of an institution's cash flows from assets, liabilities, and
off balance sheet items (the institution's net portfolio value, or "NPV")
would change in the event of a range of assumed changes in market interest
rates. The OTS also requires the computation of estimated changes in net
interest income over a four-quarter period. These computations estimate the
effect of an institution's NPV and net interest income of instantaneous and
permanent 1% to 4% increases and decreases in market interest rates. In the
Bank's interest rate sensitive policy, the Board of Directors has established
a maximum decrease in net interest income and maximum decreases in NPV given
these instantaneous changes in interest rates.
An institution's interest rate risk is measured as the change to its NPV as a
result of a hypothetical 200 basis point change in market interest rates. A
resulting change in NPV of more than 2% of the estimated market value of its
assets will require the institution to deduct from its capital 50% of that
excess change. The rules provide that the OTS will calculate the IRR
component quarterly for each institution. The following table presents the
Bank's NPV at December 31, 1996 as calculated by the OTS and based on OTS
assumptions utilizing raw data voluntarily provided to the OTS by the Bank.
Change in Interest
Rates in Basis Points
(Rate Shock)(1) Net Portfolio Value NPV as % of Assets
- --------------------- ---------------------------- ------------------------
$ Amount $ Change % Change NPV Ratio Change
-------- -------- -------- --------- ------
(Dollars in Thousands)
+400 bp 6,560 (6,915) (51)% 8.34% -718 bp
+300 bp 8,584 (4,890) (36)% 10.60% -492 bp
+200 bp 10,400 (3,074) (23)% 12.52% -301 bp
+100 bp 12,064 (1,411) (10)% 14.18% -134 bp
0 bp 13,475 % 15.53% bp
-100 bp 14,509 1,034 8% 16.46% +93 bp
-200 bp 14,895 1,421 11% 16.75% +122 bp
-300 bp 15,304 1,829 14% 17.05% +152 bp
-400 bp 15,999 2,524 19% 17.61% +208 bp
_______________
Denotes rate shock used to compute interest rate risk capital component.
-25-
<PAGE>
<PAGE>
As of December 31,
1996
------------------
RISK MEASURES:
200 Basis Point Rate Shock
Pre-Shock NPV Ratio: NPV as % of Present Value of Assets 15.53%
Exposure Measure: Post-Shock NPV Ratio 12.52%
Sensitivity Measure: Change in NPV Ratio 301 bp
CALCULATION OF CAPITAL COMPONENT:
Change in NPV as % of Present Value of Assets -3.54%
Interest Rate Risk Capital Component --
Computations of prospective effects of hypothetical interest rate changes are
based on numerous assumptions, including relative levels of market interest
rates, loan prepayments and deposit run-offs, and should not be relied upon as
indicative of actual results. Further, the computations do not contemplate
any actions the Bank may undertake in response to changes in interest rates.
Although the Bank is not subject to the interest rate risk component reduction
discussed above, the Bank is still subject to interest rate risk and, as can
be seen above, rising interest rates will reduce the Bank's NPV. The OTS has
authority to require otherwise exempt institutions to comply with the rule
concerning interest rate risk.
Dividend and Other Capital Distribution Limitations. OTS regulations require
the Bank to give the OTS 30 days advance notice of any proposed declaration of
dividends to the Company, and the OTS has the authority under its supervisory
powers to prohibit the payment of dividends to the Company.
OTS regulations impose limitations upon all capital distributions by savings
institutions, such as cash dividends, payments to repurchase or otherwise
acquire its shares, payments to shareholders of another institution in a
cash-out merger and other distributions charged against capital. The rule
establishes three tiers of institutions, based primarily on an institution's
capital level. An institution that exceeds all fully phased-in capital
requirements before and after a proposed capital distribution ("Tier 1
institution") and has not been advised by the OTS that it is in need of more
than the normal supervision can, after prior notice but without the approval
of the OTS, make capital distributions during a calendar year equal to the
greater of (i) 100% of its net income to date during the calendar year plus
the amount that would reduce by one-half its "surplus capital ratio" (the
excess capital over its fully phased-in capital requirements) at the beginning
of the calendar year, or (ii) 75% of its net income over the most recent four
quarter period. Any additional capital distributions require prior regulatory
approval. As of December 31, 1996, the Bank was a Tier 1 institution. In the
event the Bank's capital fell below its fully phased-in requirement or the OTS
notified it that it was in need of more than normal supervision, the Bank's
-26-
<PAGE>
<PAGE>
ability to make capital distributions could be restricted. In addition, the
OTS could prohibit a proposed capital distribution by any institution, which
would otherwise be permitted by the regulation, if the OTS determines that
such distribution would constitute an unsafe or unsound practice.
In addition, the Bank may not declare or pay a cash dividend on its capital
stock if the effect thereof would be to reduce the regulatory capital of the
Bank below the amount required for the liquidation account to be established
pursuant to the Bank's Plan of Conversion. Finally, a savings association is
prohibited from making a capital distribution if, after making the
distribution, the savings association would be undercapitalized (not meet any
one of its minimum regulatory capital requirements).
Qualified Thrift Lender Test. Savings institutions must meet a QTL test. If
the Bank maintains an appropriate level of Qualified Thrift Investments
(primarily residential mortgages and related investments, including certain
mortgage-related securities) ("QTIs") and otherwise qualifies as a QTL, it
will continue to enjoy full borrowing privileges from the FHLB of Seattle.
The required percentage of QTIs is 65% of portfolio assets (defined as all
assets minus intangible assets, property used by the institution in conducting
its business and liquid assets equal to 10% of total assets). Certain assets
are subject to a percentage limitation of 20% of portfolio assets. In
addition, savings associations may include shares of stock of the FHLBs, FNMA
and FHLMC as qualifying QTIs. An association must be in compliance with the
QTL test on a monthly basis in nine out of every 12 months. As of December
31, 1996, the Bank was in compliance with its QTL requirement with 94.18% of
its assets invested in QTIs.
A savings association that does not meet a QTL test must either convert to a
bank charter or comply with the following restrictions on its operations: (i)
the savings association may not engage in any new activity or make any new
investment, directly or indirectly, unless such activity or investment is
permissible for a national bank; (ii) the branching powers of the savings
association shall be restricted to those of a national bank; (iii) the savings
association shall not be eligible to obtain any advances from its FHLB; and
(iv) payment of dividends by the savings association shall be subject to the
rules regarding payment of dividends by a national bank. Upon the expiration
of three years from the date the savings association ceases to be a QTL, it
must cease any activity and not retain any investment not permissible
for a national bank and immediately repay any outstanding FHLB advances
(subject to safety and soundness considerations).
Loans-to-One Borrower. See "-- Business of the Bank -- Origination, Sale, and
Purchase of Loans -- Loans-to-One Borrower."
Community Reinvestment. Under the Community Reinvestment Act ("CRA"), as
implemented by OTS regulations, a savings association has a continuing and
affirmative obligation consistent with its safe and sound operation to help
meet the credit needs of its entire community, including low and moderate
income neighborhoods. The CRA does not establish specific lending
requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the CRA.
The CRA requires the OTS, in connection with its examination of a savings
institution, to assess the institution's record of meeting the credit needs of
its community and to take such record into account in its evaluation of
certain applications by such institution. Federal law requires public
disclosure of an institution's CRA rating and requires the OTS to provide a
written evaluation of an institution's CRA performance utilizing a four-tiered
system. The Bank received a "satisfactory" rating as a result of its last
evaluation in March, 1996.
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<PAGE>
Transactions With Affiliates. Generally, restrictions on transactions with
affiliates require that transactions between a savings association or its
subsidiaries and its affiliates be on terms as favorable to the Bank as
comparable transactions with non-affiliates. In addition, certain of these
transactions are restricted to an aggregate percentage of the Bank's capital;
collateral in specified amounts must usually be provided by affiliates to
receive loans from the Bank. Affiliates of the Bank include the Company and
any company which would be under common control with the Bank. In addition, a
savings association may not lend to any affiliate engaged in activities not
permissible for a bank holding company or acquire the securities of any
affiliate that is not a subsidiary. The OTS has the discretion to treat
subsidiaries of savings associations as affiliates on a case-by-case basis.
The Bank's authority to extend credit to its officers, directors, and 10%
shareholders, as well as to entities that such persons control is currently
governed by Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation
O promulgated by the Federal Reserve Board. Among other things, these
regulations require such loans to be made on terms substantially similar to
those offered to unaffiliated individuals, place limits on the amount of loans
the Bank may make to such persons based, in part, on the Bank's capital
position, and require certain approval procedures to be followed. An
exception to this limitation is made where there is an employee benefit
program that provides for extensions of credit to insiders that are widely
available to employees of the Bank and does not give preference to an insider
over other employees of the Bank. OTS regulations, with minor variation,
apply Regulation O to savings associations.
Liquidity Requirements. All savings associations are required to maintain an
average daily balance of liquid assets equal to a certain percentage of the
sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity requirement may vary
from time to time (between 4% and 10%) depending upon economic conditions and
savings flows of all savings associations. At December 31, 1996, the Bank's
required liquid asset ratio is 5%.
Federal Home Loan Bank System. The Bank is a member of the FHLB of Seattle,
which is one of 12 regional FHLBs that administers the home financing credit
function of savings associations. Each FHLB serves as a reserve or central
bank for its members within its assigned region. It is funded primarily from
proceeds derived from the sale of consolidated obligations of the FHLB System.
It makes loans to members (i.e., advances) in accordance with policies and
procedures established by the Board of Directors of the FHLB.
As a member, the Bank is required to purchase and maintain stock in the FHLB
of Seattle in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year. At December 31, 1996, the Bank had $1.25 million
in FHLB stock, which was in compliance with this requirement.
Federal Reserve System. The Federal Reserve Board requires all depository
institutions to maintain non-interest bearing reserves at specified levels
against their transaction accounts (primarily checking, NOW, and Super NOW
checking accounts) and non-personal time deposits. The balances maintained to
meet the reserve requirements imposed by the Federal Reserve Board may be used
to satisfy the liquidity requirements that are imposed by the OTS. At
December 31, 1996, the Bank was compliance with these Federal Reserve Board
requirements.
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<PAGE>
<PAGE>
Item 2. Description of Property
(a) Properties.
Currently, the Company does not own real property but utilizes the offices of
the Bank. The Bank operates from its main office located in downtown
Torrington at 2201 Main Street, Torrington, Wyoming 82240 and from a branch
office located at 957 Maple Street, Wheatland, Wyoming 82201. The Bank
owns both office facilities. The main office was opened in 1935 and the
present facility has 4,380 square feet. The total investment in the property
and equipment at the main office is $1,238,00 with a net book value of $752,00
at December 31, 1996. The Wheatland branch was opened in June 1979 with the
present facility being built in July 1980. The total investment in the
property and equipment at the Wheatland branch is $550,00 with a net book
value of $170,000 at December 31, 1996.
At December 31, 1996, the Bank had a total investment in its land, buildings
and improvements, and fixtures, furniture, and equipment of $1,788,000, less
accumulated depreciation of $866,000, for a net carrying value of $922,000.
(b) Investment Policies.
See "Item 1. Business" above for a general description of the Bank's
investment policies and any regulatory or Board of Directors' percentage of
assets limitations regarding certain investments. All of the Bank's
investment policies are reviewed and approved by the Board of Directors of the
Bank, and such policies, subject to regulatory restrictions (if any), can be
changed without a vote of stockholders. The Bank's investments are primarily
acquired to produce income, and to a lesser extent, possible capital gain.
(1) Investments in Real Estate or Interests in Real Estate. See "Item 1.
Business -- Lending Activities," "Item 1. Business -- Regulation of
the Bank," and "Item 2. Description of Property. (a) Properties"
above.
(2) Investments in Real Estate Mortgages. See "Item 1. Business --
Lending Activities" and "Item 1. Business -- Regulation of the
Bank."
(3) Investments in Securities of or Interests in Persons Primarily
Engaged in Real Estate Activities. See "Item 1. Business -- Lending
Activities," "Item 1. Business -- Regulation of the Bank," and "Item
1. Business -- Subsidiary Activity."
(c) Description of Real Estate and Operating Data.
Not Applicable.
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<PAGE>
<PAGE>
Item 3. Legal Proceedings
The Bank, from time to time, is a party to ordinary routine litigation, which
arises in the normal course of business, such as claims to enforce liens,
condemnation proceedings on properties in which the Bank holds security
interests, claims involving the making and servicing of real property loans,
and other issues incident to the business of the Bank. In the opinion of
management, no material loss is expected from any of such pending claims or
lawsuits.
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 the fiscal year ended December 31, 1996.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The information contained under the section captioned "Market and Dividend
Information" in the Company's Annual Report to Stockholders for the fiscal
year ended December 31, 1996 (the "Annual Report"), is incorporated herein by
reference.
Item 6. Management's Discussion and Analysis or Plan of Operation
The information contained in the section captioned "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the Annual
Report is incorporated herein by reference.
Item 7. Financial Statements
The Company's consolidated financial statements required herein are
incorporated herein by reference.
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
Not Applicable.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(b) of the Exchange Act
The information contained under the section captioned "I -- Information with
respect to Nominees for Director, Directors Continuing in Office, and
Executive Officers" in the Company's definitive proxy statement for the
Company's Annual Meeting of Stockholders to be held on April 23, 1997 (the
"Proxy Statement") which is incorporated herein by reference.
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<PAGE>
<PAGE>
Item 10. Executive Compensation
The information contained under the section captioned "Director and Executive
Officer Compensation" in the Proxy Statement is incorporated herein by
reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by reference to the
section captioned "Voting Securities and Principal Holders Thereof" in the
Proxy Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by reference to the
section captioned "I -- Information with respect to Nominees for Director,
Directors Continuing in Office, and Executive Officers" in the Proxy
Statement.
(c) Changes in Control
Management of the Corporation knows of no arrangements, including any pledge
by any person of securities of the Corporation, the operation of which may at
a subsequent date result in a change in control of the Registrant.
Item 12. Certain Relationships and Related Transactions
The information required by this item is incorporated herein by reference to
the section captioned "Certain Relationships and Related Transactions" and
"Voting Securities and Principal Holders Thereof" in the Proxy Statement.
Item 13. Exhibits, List and Reports on Form 8-K
(a)(1) The Consolidated Financial Statements and Independent Auditors'
Reports included in the Annual Report, listed below, are incorporated herein
by reference.
1. Independent Auditors' Reports
2. Tri-County Bancorp, Inc. and Subsidiary
(a) Consolidated Statements of Financial Condition at December 31,
1996 and 1995
(b) Consolidated Statements of Operations for the years ended December
31, 1996 and 1995
(c) Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1996 and 1995
(d) Consolidated Statements of Cash Flows for the years ended December
31, 1996 and 1995
(e) Notes to Consolidated Financial Statements
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<PAGE>
(a)(2) All schedules have been omitted because the required information is
either inapplicable or included in the Notes to Consolidated Financial
Statements.
(a)(3) Exhibits are either filed or attached as part of this Report or
incorporated herein by reference.
3.1 Articles of Incorporation of Tri-County Bancorp, Inc.*
3.2 Bylaws of Tri-County Bancorp, Inc.*
4 Specimen Stock Certificate**
10.1 1993 Stock Option Plan*
10.2 Management Stock Bonus Plan and Trust*
11 Statement re: Computation of Per Share Earnings (see Footnotes
18 and 20 in the Annual Report)
13 Annual Report to Stockholders for the fiscal year ended
December 31, 1995.
21 Subsidiaries of the Registrant (See information provided at
"Item 1. Business -- Subsidiary Activity").
23 Consent of Dalby, Wendland & Co., P.C.
(b) Reports on Form 8-K.
None
(c) Exhibits to this Form 10-KSB are attached or incorporated by reference as
stated above.
- -------------------
* Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (33-65162) declared effective by the Commission on August 12,
1993.
** Incorporated by reference to the Annual Securities Report on Form 10-KSB
for the fiscal year ended December 31, 1994 (File No. 0-22220) filed with
the SEC.
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<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-COUNTY BANCORP, INC.
Dated: March 28, 1997 By: /s/ Robert L. Savage
---------------------
Robert L. Savage
President, Chief Executive
Officer and Director (Duly
Authorized Representative)
Pursuant to the requirement of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By: /s/ Robert L. Savage By: /s/ William J. Rueb
---------------------- -----------------------
Robert L. Savage William J. Rueb
President, Chief Executive Officer Director
and Director (Principal Executive
Officer)
Date: March 28, 1997 Date: March 28, 1997
By: /s/ Larry C. Goddard By: /s/ Lance H. Griggs
---------------------- -----------------------
Larry C. Goddard Lance H. Griggs
Chairman of the Board Director
Date: March 28, 1997 Date: March 28, 1997
By: By: /s/ Tommy A. Gardner
---------------------- -----------------------
David C. Kellam Tommy A. Gardner, Vice President
Director (Principal Accounting and Financial
Officer
Date: March __, 1997 Date: March 28, 1997
By: /s/ Carl F. Rupp
----------------------
Carl F. Rupp
Director
Date: March 28, 1997
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EXHIBIT 13
Tri-County Bancorp, Inc.
1996 Annual Report
<PAGE>
<PAGE>
[Picture of Sculpture of flying geese]
TRI-COUNTY BANCORP, INC.
-------------------------
1996 Annual Report
-------------------------
[Tri-County Bancorp, Inc. Company Logo]
<PAGE>
<PAGE>
TABLE OF CONTENTS
Selected Financial Data Page 1
Letter to Stockholders Page 2
Management's Discussion and Analysis Page 3
Report of Independent Auditors Page 13
Consolidated Statements of Financial Condition Page 14
Consolidated Statements of Operations Page 15
Consolidated Statements of Stockholders Equity Page 16
Consolidated Statements of Cash Flow Page 17
Notes to Consolidated Financial Statements Page 18
Corporate and Stockholders' Information Page 36
<PAGE>
<PAGE>
SELECTED FINANCIAL DATA
At December 31,
-------------------------------------------
1996 1995 1994 1993 1992
-------------------------------------------
(In Thousands)
BALANCE SHEET DATA
Total amount of:
Assets $85,888 $65,766 $59,583 $59,763 $54,820
Loans receivable, net 35,265 25,514 24,439 23,798 21,247
Mortgage-backed securities, net 25,247 16,252 11,895 13,069 14,902
Investment securities, net 20,213 20,108 19,134 18,168 13,362
Deposits 48,533 44,583 45,589 46,102 48,253
FHLB advances 23,460 7,000 1,000 -- --
Stockholder s equity 13,146 13,496 12,705 13,247 6,234
Year Ended December 31
--------------------------------------------
1996 1995 1994 1993 1992
--------------------------------------------
(In Thousands)
STATEMENT OF OPERATIONS DATA
Interest income $5,494 $4,600 $4,100 $4,246 $4,571
Net interest income 2,468 2,266 2,396 2,347 2,091
Provision for loan losses -- -- -- -- (79)
Non-interest income 159 171 71 117 113
Non-interest expenses 1,811* 1,458 1,416 1,176 1,086
Net income 540* 649 764 877 691
At or For Year Ended December 31
--------------------------------------------
1996 1995 1994 1993 1992
--------------------------------------------
FINANCIAL RATIOS & OTHER DATA
Return on average assets 0.71% 1.04% 1.28% 1.56% 1.25%
Return on average stockholder's
equity 4.05% 4.96% 5.89% 10.01% 11.73%
Average interest rate spread 2.54% 2.69% 3.30% 3.60% 3.32%
Net yield on average earning
assets 3.21% 3.62% 4.12% 4.23% 3.87%
Non-interest expense to
total assets 2.11%* 2.22% 2.38% 1.97% 1.97%
Average equity/total assets 15.51% 19.92% 21.78% 13.70% 9.99%
Non-performing loans/total
assets 0.04% 0.03% 0.39% 0.41% 0.16%
At or For Year Ended December 31
---------------------------------------------
1996 1995 1994 1993 1992
---------------------------------------------
PER SHARE INFORMATION
Earnings per share $0.88 $1.03 $1.05 $0.32** N/A
Dividends per share .50 .37 .22 -- N/A
Book value per share 21.59 21.06 18.83 17.72 N/A
________________________________
* Includes one-time special assessment to recapitalize the SAIF.
** From Sept. 28, 1993
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<PAGE>
To Our Stockholders:
Tri-County Bancorp had an extraordinary year in 1996. The Company grew 30.6%
in assets, had deposit growth of 8.9%, increased checking account balances by
34.2%, a drive up ATM was installed at our main office, and new deposit and
loan products were added.
In 1996, we finally had some significant progress with banking legislation
that now allows our Bank to compete on a more equal footing with commercial
bank competitors. The disparity in FDIC deposit insurance was resolved with a
special assessment to our Bank and all other thrifts. The special assessment
cost $304,606 before taxes, resulting in an after tax reduction of
approximately $201,000 in income. The special assessment reduced earnings per
share by $.33. Beginning with the fourth quarter 1996 our cost for deposit
insurance has been reduced by approximately 72%. Additionally, legislation
was passed that put thrifts on an equal footing with commercial banks in the
treatment of bad debts for tax purposes.
Beginning in late 1995, the Company made some changes in its business
strategy. These changes made a significant impact on the financial statements
of the Company in 1996. First, the Company determined that the substantial
amount of growth to allow for full utilization of its capital was not
available within its market area. Therefore, a more aggressive policy of
purchasing securities, loans, and loan participations has been utilized to
produce more interest income. Second, the Company is working toward
increasing the number of checking account customers in order to produce more
core deposits on a long term basis. The emphasis on obtaining time deposits
has been reduced with more reliance on borrowings from the Federal Home Loan
Bank to support the growth in assets. Growth in 1997 will continue, but at a
more moderate pace. Credit quality has remained excellent, even improved in
1996 and a moderate level of interest rate risk has remained constant.
The Company completed one repurchase of stock in 1996. The repurchase
consisted of 32,039 shares which leaves 608,749 shares outstanding. The
repurchased shares were bought at an average price of $18.32 per share.
Dividends of $.50 were paid in 1996, a 35% increase over 1995.
The Board and Management continue to move the Bank ahead to improve the value
of our stockholders investment in Tri-County Bancorp, Inc. Thanks for your
support, we hope to see all of you in the Bank in 1997.
Sincerely,
Robert L. Savage Larry C. Goddard
President and Chairman of the board
Chief Executive Officer
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<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ORGANIZATION
Tri-County Bancorp, Inc. (the Company ) was organized in May of 1993 for the
purpose of acquiring all the capital stock of Tri-County Federal Bank (the
"Bank")upon conversion of the Bank from mutual to stock form of ownership
("Conversion"). The Conversion was completed on September 29, 1993. In the
related initial public offering, 747,500 shares of Tri-County Bancorp, Inc.
common stock were sold at $10.00 per share. References throughout this report
to the Company include the Company and Bank on a consolidated basis unless the
context otherwise requires.
THE COMPANY'S BUSINESS
The Company is a unitary savings and loan holding company which, under
existing laws, generally is not restricted in the types of business activities
in which it may engage provided that the Bank retains a specified amount of
its assets in housing-related investments. At the present time, since it does
not conduct any active business, the Company does not intend to employ any
persons other than officers, using the support staff from the Bank from time
to time to meet its administrative needs.
The Bank is a federally-chartered stock savings bank headquartered in
Torrington, Wyoming with one additional branch office in Wheatland, Wyoming.
The Bank was founded in 1935 as a federally-chartered savings and loan
association under the name Tri-County Federal Savings and Loan Association.
The Bank's deposits are federally insured by the Savings Association Insurance
Fund (SAIF).
The Bank is primarily engaged in attracting deposits from the general public
and using those funds to originate real estate loans on one-to-four family
residences and, to a lesser extent, consumer loans, commercial real estate
loans, and commercial business loans. The Bank's market area is primarily
Goshen and Platte Counties, Wyoming and Scottsbluff County in western
Nebraska. In addition, the Bank invests in investment securities and
mortgage-backed securities. The Bank offers its customers several types of
real estate loans, including adjustable-rate and fixed-rate mortgage loans.
The Bank has also been an originator of multi-family and commercial real
estate loans, and consumer loans, including automobile and home equity loans.
To supplement its lending activities, the Bank purchases loans and
participates in loans with other financial and mortgage banking institutions
on a case by case basis. These activities are conducted in Wyoming and other
Rocky Mountain States.
CAPITAL STOCK
Since its issuance in September 1993, the Company's common stock has been
traded over-the-counter on the Nasdaq "Small Cap" System appearing under the
symbol "TRIC". The following table reflects the stock price as published by
the Nasdaq statistical report.
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<PAGE>
<PAGE>
1995 LOW HIGH
First Quarter 03/31/95 $11.25 $14.00
Second Quarter 06/30/95 $13.25 $15.25
Third Quarter 09/30/95 $13.75 $17.75
Fourth Quarter 12/31/95 $16.25 $17.50
1996 LOW HIGH
First Quarter 03/31/96 $16.50 $18.50
Second Quarter 06/30/96 $17.50 $18.50
Third Quarter 09/30/96 $18.00 $18.88
Fourth Quarter 12/31/96 $18.00 $19.00
The number of stockholders of record as of December 31, 1996 was approximately
240. This does not reflect the number of persons or entities who held stock
in nominee or street name through various brokerage firms. At December 31,
1996, there were 608,749 shares outstanding. The Company completed one
repurchase of stock in 1996 of 32,039 shares. The repurchase was completed in
June with an average price paid of $18.32 per share.
The Company's ability to pay dividends to stockholders is dependent upon the
dividends it receives from the Bank. The Bank may not declare or pay a cash
dividend on any of its stock if the effect thereof would cause the Bank's
regulatory capital to be reduced below (1) the amount required for the
liquidation account established in connection with the Bank's conversion from
mutual to stock form, or (2) the regulatory capital requirements imposed by
the Office of Thrift Supervision ("OTS"), the Bank's chartering authority and
primary federal regulator. The Company paid per share, dividends of $.25 on
March 31, 1996 and $.25 on September 30, 1996. The $.50 in dividends paid in
1996 exceeded 1995 dividends by $.13 or 35.1%.
CHANGES IN FINANCIAL CONDITION
ASSETS
The total assets of the Bank increased by $20,122,000 or 30.60% during 1996.
Securities available-for-sale increased by $17,043,000 during 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 1996, securities
available-for-sale totaling $13,578,000 were purchased with funds borrowed
from FHLB. Also, Federal Farm Credit Bank, Federal National Mortgage
Association, and FHLB notes totaling $6,000,000 matured or were called by the
agencies. These securities had been previously classified held-to-maturity and
the Bank used $5,000,000 of the proceeds to purchase similar securities which
were classified available-for-sale. The Bank also purchased a $2,000,000
Federal Farm Credit Bank note during the year. These purchases were partially
offset by the redemption of shares in a mutual fund totaling $2,515,000 and
principal payments and prepayments of $1,168,000 on mortgage-backed
securities.
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<PAGE>
<PAGE>
Securities held-to-maturity decreased by $7,944,000. As previously discussed,
$6,000,000 of agency securities were either called or matured during 1996 and
the proceeds were used, in part, to purchase securities available-for-sale.
The remaining decrease was the result of principal payments and prepayments on
the Bank's portfolio of mortgage-backed securities.
Loans receivable increased $9,752,000 during the current year. During this
period the Bank originated or purchased for portfolio, residential mortgage
loans totaling $9,855,000, non-residential mortgage loans totaling $3,023,000,
consumer loans totaling $1,499,000, a short-term commercial loan in the amount
of $500,000 and other commercial loans totaling $249,000. By the end of the
period, the Bank had received full repayment of the short-term commercial loan
and repayments totaling $6,040,000 on other loans. Of the total residential
and non-residential mortgage loans originated or purchased during the year,
$8,288,000 were adjustable rate and $4,590,000 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 74.50% of mortgage lending during the year.
The majority of purchased loans are residential real estate loans in Colorado
mountain resort communities and commercial 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. Additionally,
management of the Bank makes an inspection of these properties on a periodic
basis. The purchased loans are limited to one mortgage banker that the Bank
has dealt with consistently. Real estate owned or in judgment decreased by
$187,000 in 1996. The Bank foreclosed on two mortgage loans near the end of
the previous year. The collateral for these loans, a single family dwelling
and a mini-storage warehouse, was sold during the current year. The
dispositions of foreclosed property exceeded the amount of foreclosures during
the current year which consisted of one residential loan with a balance of
$18,000.
At December 31, 1996, the Bank had non-performing assets totaling $53,000
which consisted of two residential mortgage loans in non-accrual status and a
single family dwelling obtained through foreclosure. Management believes no
losses will be incurred by the Bank from the dispositions of these
non-performing assets.
LIABILITIES
Deposit balances increased by $3,950,000 and consisted of increases of
$872,000 and $3,332,000 in checking and time deposits, respectively, and a
decrease of $254,000 in savings deposits. The Bank was the successful bidder
on $3,400,000 of time deposits of a local school district near the end of
1996.
Advances from FHLB increased by $16,460,000 during 1996. As previously
discussed, advances totaling $10,300,000 were used to purchase securities
classified as available-for-sale. These advances have terms 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 terms of the
advances and will make a decision whether to renew the advance and hold the
security or sell the security and payoff the advance on or near the maturity
date of the advance. The Bank also borrowed $1,885,000 from FHLB under the
Community Investment Program to fund two commercial real estate loans in
Wyoming and Colorado. Other borrowings were used to fund the origination or
purchase of portfolio mortgage loans for terms of less than one year.
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STOCKHOLDERS' EQUITY
The increase in additional paid-in capital of $46,000 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
$540,000 which more than offset the decrease in retained earnings caused by
the payments of dividends of $0.50 per share for a total of $312,000.
In March of 1996, the Bank received permission from the OTS to repurchase up
to 32,039 shares (5%) of its outstanding Common Stock in the open market. The
repurchase was completed at a total cost of $587,096 or an average purchase
price of $18.32 per share.
AVERAGE BALANCE SHEET
The following table sets forth certain information relating to average balance
sheets and reflects the average yield on assets and average cost of
liabilities for the periods indicated and the average yields earned and rates
paid. Such yields and costs are derived by dividing income or expense by the
average balance of assets or liabilities, respectively, for the periods
presented. Average balances are derived from month-end balances. Management
does not believe that the use of month-end instead of daily average balances
has caused any material difference in the information presented.
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<TABLE>
<CAPTION>
Year Ended December 31, 1996
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $31,815 $2,597 8.16% $25,459 $2,090 8.21%
Securities - Available for Sale 28,676 1,814 6.33% 18,131 1,181 6.51%
Securities - Hold to maturity 12,671 944 7.45% 16,984 1,215 7.15%
Other interest-earning assets 447 32 7.16% 1,798 112 6.23%
------- ------ ------- ------
Total interest-earning assets $73,609 $5,387 7.32% $62,372 $4,598 7.37%
------ ------
Non-interest earning assets 2,089 1,677
------- -------
Total Assets $75,698 $64,049
======= =======
Interest-bearing liabilities:
Deposits $45,708 $2,084 4.56% $45,447 $2,084 4.59%
Other borrowings 17,629 943 5.35% 4,625 258 4.48%
------- ------ ------- ------
Total interest-bearing liabilities $63,337 $3,027 4.78% $50,072 $2,342 4.68%
------ ------
Non-interest bearing liabilities 1,273 863
------- -------
Total liabilities $64,610 $50,935
Retained earnings 11,088 13,114
------- -------
Total liabilities and Retained
earnings $75,698 $64,049
======= =======
Net interest income $2,360 $2,256
====== ======
Interest rate spread 2.54% 2.69%
Net yield on interest earning assets 3.21% 3.62%
Ratio of average interest-earning asset
to interest-bearing liabilities 116.22% 124.56%
</TABLE>
RATE/VOLUME ANALYSIS
The table below sets forth certain information regarding changes in interest
income and interest expense of the Bank for the periods indicated. For each
category of interest-earning asset and interest-bearing liability, information
is provided on changes attributable to (i) changes in volume (change in
average volume multiplied by old rate); (ii) change in rates (changes in rate
multiplied by old average volume); (iii) changes in rate/volume (changes in
rate multiplied by the change in average volume).
<TABLE>
<CAPTION>
Year Ended December 31, 1996 vs. 1995 Year Ended December 31, 1995 vs. 1994
Increase (Decrease) Due To Increase (Decrease) Due To
Volume Rate Rate/Volume Net Volume Rate Rate/Volume Net
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable 522 (12) (3) 507 296 (116) (18) 162
Securities-Available for sale 687 (34) (20) 633 0 0 1,181 1,181
Securities-Held to maturity (308) 50 (13) (271) 159 (74) (10) 75
Other interest-earning assets (84) 17 (13) (80) (85) (19) 8 (96)
--- --- --- --- --- --- ----- -----
Total interest-earning assets 817 21 (49) 789 370 (209) 1,161 1,322
Interest-bearing liabilities:
Deposit accounts 12 (12) 0 0 (80) 146 (6) 60
Other liabilities 726 (11) (30) 685 0 0 258 258
--- --- --- --- --- --- ----- -----
Total interest-bearing liabilities 738 (23) (30) 685 (80) 146 252 318
Net change in interest income 79 44 (19) 104 450 (355) 909 1,004
=== === === === === === ===== =====
</TABLE>
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COMPARISON OF THE OPERATING RESULTS FOR THE
YEARS ENDED DECEMBER 31, 1996 AND 1995
NET INCOME
Net income decreased $109,000 or 16.81% during the year ended December 31,
1996 when compared to net income for 1995. Net interest income increased by
$202,000 but was offset by a decrease of $12,000 in non-interest income and an
increase of $353,000 in non-interest expense. The provision for income taxes
decreased by $54,000 or 16.62%.
INTEREST INCOME
Interest income from loans increased $542,000 or 25.95% for the year ended
December 31, 1996. The increase was the result of an increase in the average
balance of loans outstanding of $6,356,000 which more than offset the decrease
in yield on the loans from 8.21% to 8.16%. The Bank began originating and
purchasing loans outside its primary lending area which enabled the Bank to
increase its loan portfolio. The decrease in yield was primarily the result
of the slight decrease in average lending rates during 1996 when compared to
the average rates in the previous year.
The increase of $710,000 in interest on securities available for sale was the
result of an increase in the average balance of securities of $10,545,000
which offset a decrease in the average yield on the portfolio from 6.51% to
6.33%.
Interest on securities held to maturity decreased $270,000 which was caused by
a decrease in the average balance of the portfolio of $4,313,000 which offset
an increase in the yield on the portfolio from 7.15% to 7.45%. The increase
in yield was the result of the maturity of two securities which, 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 decrease in income from other interest-earning assets of $79,623 was
caused by a decrease in the average balance of these assets of $1,351,025.
This category of assets consists primarily of interest-earning demand and time
deposits held at FHLB.
INTEREST EXPENSE
Interest expense on deposits increased $7,846 during 1996. This increase was
the result of an increase of $260,334 in the average balance of deposits which
more than offset the slight decrease in the average cost of deposits from
4.59% to 4.56%.
As previously discussed, beginning in the fourth quarter of 1994, the Bank
began taking 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 amount of
these borrowings increased by $13,006,667 during 1996 which more than offset
the decrease in the cost of the advances from 5.58% to 5.35%. A portion of
the advances outstanding during part of 1995 were borrowed in the fourth
quarter of 1994 and in the first quarter of 1995 when rates were at their
highest level during these periods.
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<PAGE>
PROVISION FOR LOAN LOSSES
No provision for loan losses was made during 1996. The allowance for loan
losses is based on Management's evaluation of the risk inherent in it s 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 $415,000 and $423,000 at December 31, 1996 and 1995,
respectively. 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 decreased $12,000 or 6.75% during 1996. The increase in
the gain on sale of loans was caused by an increase in the dollar amount of
loans sold. During the previous year, shares in a mutual fund were redeemed
at a $1,000 gain whereas during the current year the shares were redeemed at a
$6,000 loss. The increase in service charges on deposits was primarily caused
by an increase in the number of accounts subject to service charges. Other
non-interest income decreased by $9,000 and was caused by a number of factors,
with the most significant factor being the recognition of deferred loan fee
income in 1995 which was not repeated in 1996.
NON-INTEREST EXPENSE
Overall, non-interest expense increased $353,000 during 1996.
Compensation and benefits increased by $91,000 in 1996 and was primarily
caused by changes in the Bank's pension plans. In November of 1995, a defined
benefit pension plan was terminated. The Bank had accrued, but not
contributed, pension plan expenses in the amount of $69,000 in a prior year.
It was determined in the fourth quarter of 1995 that additional contributions
to the terminated plan would not be required and, therefore, the $69,000
overaccrual was credited to pension expense in December of 1995. Such credit
was not present in fiscal 1996.
Occupancy and equipment expense increased $11,000 and was primarily caused by
an increase in depreciation, data processing and communications expenses
related to the installation and operation of an Automated Teller Machine at
the Bank's main office.
As previously stated, legislation was passed in the third quarter of 1996
which provided for the recapitalization of the SAIF via a one-time special
assessment in the amount of 65.7 cents for every $100 in deposits at the Bank
as of March 31, 1995. This special assessment totaled $304,606 and was
charged to expense in the current year. Pursuant to the above-mentioned
legislation, the Bank will pay, in addition to its normal deposit insurance
premium as a member of SAIF, an amount equal to approximately 6.4 basis points
toward the retirement of the Financing corporation bonds ( FICO bonds ) issued
in the 1980s to assist in the recovery of the savings and loan industry.
Members of the Bank Insurance Fund ( BIF ), by contrast, will pay, in addition
to their normal deposit insurance premium, approximately 1.3 basis points.
Beginning no later than January 1, 2000, the rate paid to retire the FICO
bonds will be equal for members of the BIF and SAIF. The legislation also
provided for the merger of the BIF and the SAIF by January 1, 1999, provided
there are no financial institutions still chartered as thrifts at that time.
Should the insurance funds be merged before January 1, 2000, the rate paid by
all members of this new fund to retire the FICO bonds would be equal.
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<PAGE>
Other, net expenses decreased by $47,000 and were caused, in part, by the
receipt of rents on a mini-warehouse property held as real estate owned. The
receipt of the rents from the court appointed trustee exceeded the expenses of
maintaining the property during the foreclosure proceedings by $18,000. Also,
the Bank did not retain the services of an advertising agency in 1996 which
resulted in a savings of $18,000.
INCOME TAXES
The provision for income taxes decreased $54,000 for the year ended December
31, 1996. This decrease was caused, in part, by a decrease in pre-tax income
of $163,000. Also, prior to the enactment, on August 20, 1996, of the Small
Business Job Protection Act of 1996 (the "1996 Act"), thrift institutions such
as the Bank were permitted to establish tax reserves for bad debts and to make
annual additions thereto, which additions could, within specified limitations,
be deducted in arriving at their taxable income. The Bank's deduction with
respect to qualifying loans, which are generally loans secured by certain
interests in real property, could be computed using an amount based on a
six-year moving average of the Bank's actual loss experience (the Experience
Method), or a percentage equal to 8.0% of the Bank's taxable income (the PTI
Method).
Under the 1996 Act, the PTI Method was repealed and the Bank will be required
to use the Experience Method of computing additions to its bad debt reserve or
otherwise change its method of accounting for bad debts to the specific
charge-off method for the current tax year. In addition, the Bank is required
to take into taxable income over a six year period beginning with the current
tax year the excess of the balance of its bad debt reserves as of December 31,
1995 over the greater of (a) the balance of such reserves as of December
31,1987 or (b) an amount that would have been the balance of such reserves as
of December 31, 1995 had the Bank computed its additions to its reserves using
the Experience Method. Because the Bank incurred losses on the dispositions of
foreclosed property in excess of the additions to its bad debt reserves as
allowed by the PTI Method or the Experience Method during the period beginning
on January 1, 1988 and ending on December 31, 1995, and because these losses
were charged directly to the tax bad debt reserve, the Bank is not subject to
the recapture provisions of the 1996 Act.
Finally, because the Bank had established reserves for loan losses which
totaled $415,000 at December 31, 1996 which will be charged with any
subsequent loan losses and because the Bank will be using the specific
charge-off method 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 statement purposes. This difference will
exist until the losses realized by the Bank equal or exceed its loan loss
reserves and, pursuant to SFAS No. 109, Accounting for Income Taxes, a
deferred tax asset equal to the estimated future tax benefit of the temporary
difference is required. Therefore, the Bank will establish a deferred tax
asset via charges to income tax expense, equally over an eight quarter period,
beginning with the fourth quarter of 1996. The effect of this change in 1996
was a reduction in the provision for income taxes totaling $17,600.
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LIQUIDITY AND CAPITAL RESOURCES
The Bank is required to maintain minimum levels of liquid assets as defined by
the OTS 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 30.60% during the month of December, 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
December 31, 1996 amounted to $1,751,000. 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:
Year Ended December 31,
1996 1995
-------- -------
Cash and cash equivalents at beginning of year $ 909 $ 1,465
-------- -------
OPERATING ACTIVITIES:
Net Income 540 649
Adjustments to reconcile net income to net
cash provided by operation activities 219 94
-------- -------
Net cash provided by operating activities 759 743
Net cash provided (used) by investing activities (18,937) (5,690)
Net cash provided (used) by financing activities 19,558 4,391
-------- -------
Net increase (decrease) in cash and cash equivalents 1,380 (556)
Cash and cash equivalents at end of period $ 2,289 $ 909
======== =======
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<PAGE>
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 December 31, 1996, the Bank had outstanding commitments of
$636,508. Certificates of deposit scheduled to mature in one year or less at
December 31, 1996 totaled 30,337,965. 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 December 31,
1996, as compared to the minimum regulatory requirements:
Amount Percent of Adjusted Assets
(Dollars in thousands)
TANGIBLE CAPITAL:
Required $ 1,270 1.50%
Actual 10,740 12.68%
-------- ------
Excess $ 9,470 11.18%
CORE CAPITAL:
Required $ 2,540 3.00%
Actual 10,740 12.68%
-------- ------
Excess $ 8,200 9.68%
RISK BASED CAPITAL:
Required $ 2,592 8.00%
Actual 11,145 34.40%
-------- ------
Excess $ 8,553 26.40%
======== ======
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 sa the prices of goods and
services.
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REPORT OF INDEPENDENT AUDITORS
Board of Directors
Tri-County Bancorp, Inc. and Subsidiaries
We have audited the accompanying consolidated statements of financial
condition of Tri-County Bancorp, Inc. and Subsidiaries (the Company) as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, stockholders' equity and cash flows for the years then ended.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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 audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated 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 consolidated financial condition
of Tri-County Bancorp, Inc. and Subsidiaries as of December 31, 1996 and 1995,
and the consolidated results of their operations and their cash flows for the
years then ended, in conformity with generally accepted accounting principles.
DALBY, WENDLAND & CO., P.C.
Grand Junction, Colorado
February 7, 1997
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<PAGE>
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
ASSETS 1996 1995
------- ----------- -----------
<S> <C> <C>
Cash $ 537,195 $ 350,964
Interest earning deposits at other financial institutions 1,751,397 557,768
Securities held to maturity, fair value $10,589,408 (1996) and $18,583,902 (1995) 10,319,706 18,263,560
Securities available for sale, at fair value 35,140,115 18,096,795
Loans receivable, net 35,265,278 25,513,700
Loans held for sale, at market value 90,000 84,929
Real estate owned and in judgment, net 18,207 205,252
Accrued interest receivable 549,524 516,522
Federal Home Loan Bank stock 1,253,300 1,159,900
Office property and equipment, net 921,681 961,627
Prepaid expenses and other assets 41,678 55,068
----------- -----------
Total Assets $85,888,081 $65,766,085
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
--------------------------------------
Deposits $48,533,057 $44,583,299
Advances from Federal Home Loan Bank 23,460,492 7,000,000
Advances by borrowers for taxes and insurance 104,387 116,371
Accounts payable and accrued expenses 234,141 144,077
Deferred income taxes 410,440 425,914
----------- -----------
Total Liabilities 72,742,517 52,269,661
----------- -----------
Stockholders' Equity
Preferred stock, 5,000,000 shares, $.10 par value authorized,
none issued or outstanding -- --
Common stock, 10,000,000 shares, $.10 par value authorized,
747,500 shares issued 74,750 74,750
Additional paid-in capital 7,029,604 6,983,901
Retained earnings - substantially restricted 8,353,630 8,125,865
Unearned compensation relating to Employee Stock Option Plan and
Management Stock Bonus Plan (506,725) (627,900)
Unrealized gain on securities available for sale, net of tax 239,619 398,026
Treasury stock - 138,751 (1996) and 106,712 (1995) shares, at cost (2,045,314) (1,458,218)
----------- -----------
Total Stockholders' Equity 13,145,564 13,496,424
----------- -----------
Total Liabilities and Stockholders' Equity $85,888,081 $65,766,085
=========== ===========
</TABLE>
See accompanying notes.
-14-
<PAGE>
<PAGE>
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
1996 1995
--------- ---------
INTEREST INCOME
Loans $2,632,609 $2,090,239
Mortgage-backed securities
Held to maturity 769,974 886,305
Available for sale 670,754 184,237
Other securities
Held to maturity 174,432 327,719
Available for sale 1,213,580 999,094
Other interest earning assets 32,553 112,176
--------- ---------
Total Interest Income 5,493,902 4,599,770
========= =========
INTEREST EXPENSE
Deposits 2,082,646 2,074,800
Advances 943,600 258,886
Total Interest Expense 3,026,246 2,333,686
--------- ---------
Net Interest Income 2,467,656 2,266,084
PROVISION FOR LOAN LOSSES - -
Net Interest Income After Provision for Loan Losses 2,467,656 2,266,084
--------- ---------
NONINTEREST INCOME
Service charges on deposits 100,795 97,706
Gain on sale of loans 33,359 31,559
Gain (loss) on sale of investments
available for sale (5,596) 1,387
Other, net 30,710 40,114
--------- ---------
Total Noninterest Income 159,268 170,766
--------- ---------
NONINTEREST EXPENSE
Compensation and benefits 810,212 745,256
Occupancy and equipment 294,493 283,954
SAIF assessment 304,606 -
Federal insurance premiums 97,894 104,580
Other, net 303,497 324,094
--------- ---------
Total Noninterest Expense 1,810,702 1,457,884
--------- ---------
Net Income Before Income Taxes 816,222 978,966
PROVISION FOR INCOME TAXES 276,073 329,636
--------- ---------
Net Income $ 540,149 $ 649,330
========= =========
EARNINGS PER COMMON SHARE $ .88 $ 1.03
========= =========
See accompanying notes.
-15-
<PAGE>
<PAGE>
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
For the years ended December 31, 1996 and 1995
Additional Management Unrealized Gain
Common Paid-In Retained Employee Stock Stock Bonus (Loss) on Securities Treasury
Stock Capital Earnings Ownership Plan Plan Available for Sale Stock Total
------- ---------- ---------- -------------- ----------- -------------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE - December 31, 1994 $74,750 $6,943,222 $7,719,382 $(523,250) $(224,250) $(321,506) $ (963,036) $12,705,312
Net income - - 649,330 - - - - 649,330
Repayment of ESOP debt - - - 59,800 - - - 59,800
Allocation of ESOP shares - 40,679 - - - - - 40,679
Amortization of deferred
compensation - MSBP - - - - 59,800 - - 59,800
Treasury stock purchased - - - - - - (495,182) (495,182)
Change in unrealized
gain (loss) on
securities available
for sale, net of tax - - - - - 719,532 - 719,532
Dividends paid - - (242,847) - - - - (242,847)
------- ---------- ---------- --------- --------- --------- ---------- -----------
BALANCE - December 31, 1995 74,750 6,983,901 8,125,865 (463,450) (164,450) 398,026 (1,458,218) 13,496,424
Net income - - 540,149 - - - - 540,149
Repayment of ESOP debt - - - 59,800 - - - 59,800
Allocation of ESOP shares - 45,703 - - - - - 45,703
Amortization of deferred
compensation - MSBP - - - - 61,375 - - 61,375
Treasury stock purchased - - - - - - (587,096) (587,096)
Change in unrealized
gain (loss) on
securities available
for sale, net of tax - - - - - (158,407) - (158,407)
Dividends paid - - (312,384) - - - - (312,384)
------- ---------- ---------- --------- --------- -------- ----------- -----------
BALANCE - December 31, 1996 $74,750 $7,029,604 $8,353,630 $(403,650) $(103,075) $239,619 $(2,045,314) $13,145,564
======= ========== ========== ========= ========= ======== =========== ===========
</TABLE>
See accompanying notes.
-16-
<PAGE>
<PAGE>
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 540,149 $ 649,330
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization 89,104 136,169
Provision for deferred taxes 42,000 54,000
(Gain) loss on sale of securities available for sale 5,596 (1,387)
Net gain on sale of loans (33,359) (31,559)
(Gain) loss on sale of real estate owned 2,615 (1,560)
FHLB stock dividends received (93,400) (73,200)
Unvested forfeitable stock awarded 61,375 59,800
Net change in other assets (19,612) (137,422)
Net change in other liabilities 135,766 (1,954)
Origination of loans held for sale (1,780,506) (1,370,369)
Proceeds from sale of loans 1,808,794 1,460,999
----------- ----------
Net Cash Provided By Operations 758,522 742,847
----------- ----------
INVESTING ACTIVITIES
Net loan origination and principal repayments on loans 99,009 876,185
Purchase of loans (9,840,220) (2,157,250)
Net change in certificates of deposit held by other
financial institutions - 100,000
Purchase of securities held to maturity - (4,993,059)
Principal received on securities held to maturity 7,948,466 1,632,923
Purchase of securities available for sale (21,138,975) (7,266,451)
Proceeds from sale of securities available for sale 2,710,541 5,459,431
Principal received on securities available for sale 1,154,524 874,488
Proceeds from sale of real estate owned 210,777 16,203
Investment in property, equipment and real estate owned (81,370) (232,777)
----------- ----------
Net Cash Used By Investing Activities (18,937,248) (5,690,307)
----------- ----------
FINANCING ACTIVITIES
Net change in deposits 3,949,758 (1,006,070)
Advances from Federal Home Loan Bank 49,784,625 6,500,000
Repayment of Federal Home Loan Bank advances (33,324,133) (500,000)
Increase (decrease) in advances by borrowers for taxes and insurance (11,984) 74,996
Dividends paid (312,384) (242,847)
ESOP payments received 59,800 59,800
Purchase of treasury stock (587,096) (495,182)
----------- ----------
Net Cash Provided by Financing Activities 19,558,586 4,390,697
----------- ----------
Increase (Decrease) in Cash and Cash Equivalents 1,379,860 (556,763)
Cash and cash equivalents - Beginning of Period 908,732 1,465,495
----------- ----------
Cash and cash equivalents - End of Period $ 2,288,592 $ 908,732
=========== ==========
</TABLE>
See accompanying notes.
-17-
<PAGE>
<PAGE>
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Tri-County Bancorp, Inc. (the Company) is a bank holding company organized
under Wyoming law in 1993 and headquartered in Torrington, Wyoming. Through
its subsidiaries, the Company provides a wide range of thrift-related services
to customers in its primary market area of eastern Wyoming.
Basis of Presentation
The consolidated financial statements include the accounts of Tri-County
Bancorp, Inc., its wholly-owned subsidiary, Tri-County Federal Bank (the
Bank) and its wholly-owned subsidiary, First Tri-County Services, Inc. The
investment in the subsidiaries is accounted for using the equity method of
accounting. All significant intercompany accounts and transactions have been
eliminated in consolidation. Certain prior period amounts have been
reclassified to conform with the current year s presentation. The preparation
of financial statements in conformity with generally accepted accounting
principles (GAAP) requires management to make estimates and assumptions that
affect amounts reported in the consolidated financial statements. Actual
results could differ from those estimates.
Securities Held to Maturity
These securities are purchased with the original intent to hold to maturity.
Events which may be reasonably anticipated are considered when determining
the Company's intent and ability to hold to maturity. Securities meeting
such criteria at date of purchase and as of the balance sheet date are
carried at cost, adjusted for amortization of premiums and accretion of
discounts. Gains or losses on the disposition of held to maturity securities,
if any, are based on the adjusted book value of the specific security.
Securities Available for Sale
Debt and equity securities to be held for indefinite periods of time and not
intended to be held to maturity are classified as available for sale and
carried at market value with net unrealized gains and losses, net of tax,
reflected as a component of stockholders equity until realized. Securities
held for indefinite periods of time include securities that may be sold to
meet liquidity needs or in response to significant changes in interest rates
or prepayment risks as part of the Company's overall asset/liability
management strategy.
-18-
<PAGE>
<PAGE>
Loans
The Company has established a lending policy where the credit worthiness of
each customer is reviewed and the amount of collateral obtained, upon
approval, is based on Management's credit evaluation of the customer.
Generally the loans are collateralized by mortgages held by the Company.
Loans are stated at the principal amount outstanding, net of deferred loan
fees, discounts, and the allowance for loan losses. Interest on loans is
calculated by using the simple interest method on the balance of the principal
amount outstanding. Interest income on loans receivable is accrued as earned
based on the principal balance outstanding. The Company discontinues the
accrual of interest when the related loan is 90 days delinquent. Accumulated
interest receivable is charged-off when the related loan is placed on
non-accrual status.
Loan origination fees and direct costs of originating loans are deferred and
amortized using the level-interest yield method over the contractual life
of the related loan.
Effective January 1, 1995, the Company adopted Standard of Financial
Accounting Statement (SFAS) No. 114, Accounting by Creditors for Impairment
of a Loan, as amended by SFAS No. 118. This Statement requires certain
impaired loans to be measured based on the present value of expected future
cash flows discounted at the loan s effective interest rate or, as a practical
expedient, at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. The adoption of these
standards did not have a material effect on the consolidated financial
statements.
Allowance for Loan Losses
The allowance for loan losses reflects Management's judgment as to the
level considered adequate to absorb potential losses inherent in the loan
portfolio. This judgment is based on a review of individual loans, historical
loss experience, economic conditions, portfolio trends and other factors.
Allowances for impaired loans are generally determined based on collateral
values or the present value of estimated cash flows. The allowance is
increased by provisions charged to earnings and reduced by charge-offs, net of
recoveries. Changes in the allowance relating to impaired loans are charged or
credited to the provision for loan losses. Because of uncertainties inherent
in the estimation process, Management's estimate of credit losses inherent in
the loan portfolio and the related allowance may change in the near term.
Mortgage Banking Operations
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated market value in the aggregate. Net
unrealized losses are recognized in a valuation allowance by a charge to
income. The cost of loans held for sale at December 31, 1996 and 1995,
approximated their estimated market value.
In 1995, the Company adopted SFAS No. 122, Accounting for Mortgage Servicing
Rights. The primary effect of this statement is to allow the recording of an
asset, mortgage servicing rights (MSRs), for loans originated and sold with
servicing retained. Subsequent to the adoption of SFAS No. 122, all loans sold
were sold with servicing released. The adoption of this standard had no
material effect on the Company's consolidated financial statements.
-19-
<PAGE>
<PAGE>
Real Estate Owned and In Judgment
Real estate acquired through loan foreclosures is recorded at the
lower of cost or estimated fair value less estimated costs to sell. Valuations
are periodically performed by management and subsequent charges to income
are taken when it is determined that the carrying value of the property
exceeds the fair value less estimated costs to sell.
Federal Home Loan Bank Stock
The Bank, as a member of the Federal Home Loan Bank (FHLB), is required to
maintain an investment in capital stock of the FHLB. No ready market exists
for the FHLB stock, and it has no quoted market value. The stock is carried
at cost and is assumed to have a market value which is equal to cost.
Office Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the related
assets.
Normal maintenance and repairs are expensed as incurred. Improvements and
major repairs that materially extend the lives of assets are capitalized.
Income Taxes
Deferred tax assets and liabilities are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax assets
or liabilities are expected to be realized or settled. As changes in tax
laws or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes.
Effect of New Accounting Standard
In June 1996, the Financial Accounting Standards Board (FASB) issued SFAS
No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, which is effective for such transactions
occurring after December 31, 1996. SFAS No. 125 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities.
The Company expects to adopt this standard when required. Management
believes the adoption will not have a material effect on consolidated
financial position and results of operations, nor will adoption require
additional capital resources.
-20-
<PAGE>
<PAGE>
Stock Options
In October 1995, FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation. Under SFAS No. 123, an entity can choose to compute
compensation expense related to stock options using a fair value method or
can continue to use the intrinsic value method. If the intrinsic method is
chosen, then the Company will be required to present pro forma data for all
awards granted in fiscal years that begin after December 15, 1994. If the
fair value method is selected, SFAS No. 123 would be effective for all
transactions entered into for fiscal years that begin after December 15, 1995.
The Company had no stock option transactions that would require the
implementation of SFAS No. 123 in the years ended December 31, 1996 and 1995.
It is currently anticipated that the Company will continue to account for
stock-based compensation plans under the intrinsic method. Therefore, the
adoption of SFAS No. 123 will have no effect on the Company's consolidated
financial statements. Final determination of the method selected will be done
in the year the Company has transactions covered by this accounting
pronouncement.
Cash and Cash Equivalents and Supplemental Disclosures
For the purpose of reporting cash flows, cash and cash equivalents include
cash on hand, demand deposits at other financial institutions and overnight
deposits. Certificates of deposit at other institutions with original
maturities in excess of three months are considered as part of a larger pool
of investments and are not treated as cash equivalents.
Supplemental cash payments and noncash activities were as follows:
1996 1995
---------- ----------
Interest paid $2,927,883 $2,300,662
Income taxes paid $ 243,600 $ 285,500
Noncash transactions:
Loans transferred to real estate owned $ 17,947 $ 187,442
Earnings Per Share
Per common share amounts have been calculated based upon the weighted average
number of common and common stock equivalents outstanding in each period,
611,141 (1996) and 630,967 (1995). Common stock equivalents include shares
issuable upon exercise of dilutive options outstanding.
-21-
<PAGE>
<PAGE>
NOTE 2 - SECURITIES
Investment securities have been classified according to Management's intent.
The amortized cost and estimated fair value at December 31 were as follows:
Securities Held to Maturity
Gross Gross
Amortized Unrealized Unrealized Fair
1996 Cost Gains Losses Value
- ---- --------- ---------- ---------- -----------
U.S. Government and Federal
Agency/Corporation Obligations $ 1,005,570 $ 27,380 $ - $ 1,032,950
Mortgage-backed securities
GNMA certificates 767,740 10,672 - 778,412
FHLMC certificates 7,865,668 238,778 (21,895) 8,082,551
FNMA certificates 680,728 14,767 - 695,495
---------- ------- -------- ----------
Total Mortgage Backed Securities 9,314,136 264,217 (21,895) 9,556,458
---------- ------- -------- ----------
$10,319,706 $291,597 $(21,895) $10,589,408
========== ======= ======= ==========
1995
- ----
U.S. Government and Federal
Agency/Corporation Obligations $ 7,008,428 $ 64,207 $(10,935) $ 7,061,700
Mortgage-backed securities
GNMA certificates 924,836 15,088 - 939,924
FHLMC certificate 9,500,348 273,145 (26,801) 9,746,692
FNMA certificates 829,948 5,638 - 835,586
---------- ------- ------- ----------
Total Mortgage Backed Securities 11,255,132 293,871 (26,801) 11,522,202
---------- ------- ------- ----------
$18,263,560 $358,078 $(37,736) $18,583,902
========== ======= ======= ==========
Securities Available for Sale
Gross Gross
Amortized Unrealized Unrealized Fair
1996 Cost Gains Losses Value
- ---- --------- ---------- ---------- -----------
Debt Securities
U.S. Government and Federal
Agency/Corporation Obligations $ 8,928,006 $29,549 $(36,291) $ 8,921,264
Mortgage-backed securities
GNMA certificates 8,231,708 24,737 (6,274) 8,250,171
FHLMC certificates 6,354,542 36,698 (55,435) 6,335,805
FNMA certificates 1,345,916 520 - 1,346,436
----------- ------ ------- ----------
Total Mortgage-backed Securities 15,932,166 61,955 (61,709) 15,932,412
----------- ------ ------- ----------
Total Debt Securities 24,860,172 91,504 (98,000) 24,853,676
----------- ------ ------- ----------
Equity Securities
U.S. Government and Federal
Agency/Corporation Obligations 25,662 697,515 - 723,177
Asset management funds
ARM portfolio 1,137,836 - (7,854) 1,129,982
Mortgage securities
performance portfolio 8,753,387 - (320,107) 8,433,280
---------- ------- --------- ----------
Total Equity Securities 9,916,885 697,515 (327,961) 10,286,439
---------- ------- -------- ----------
$34,777,057 $789,019 $(425,961) $35,140,115
========== ======= ======== ==========
-22-
<PAGE>
<PAGE>
Gross Gross
Amortized Unrealized Unrealized Fair
1995 Cost Gains Losses Value
- ---- --------- ---------- ---------- -----------
Debt Securities
U.S. Government and Federal
Agency/Corporation Obligations $ 1,965,849 $ 2 $ - $ 1,965,851
Mortgage-backed securities
FHLMC certificates 4,940,281 56,299 (51) 4,996,529
---------- -------- --------- ----------
Total Debt Securities 6,906,130 56,301 (51) 6,962,380
---------- -------- --------- ----------
Equity Securities
U.S. Government and Federal
Agency/Corporation Obligations 25,662 521,430 - 547,092
Asset management funds
ARM portfolio 3,853,973 - (8,053) 3,845,920
Mortgage securities
performance portfolio 6,753,387 - (11,984) 6,741,403
---------- -------- ---------- ----------
Total Equity Securities 10,633,022 521,430 (20,037) 11,134,415
---------- -------- ---------- ----------
$17,539,152 $577,731 $ (20,088) $18,096,795
========== ======= ========== ==========
The amortized cost and fair value of debt securities at December 31, 1996, by
contractual maturity, 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.
Securities Held to Maturity Securities Available for Sale
--------------------------- ----------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---------- ---------- ---------- ----------
Due in one year
or less $ 500,167 $ 502,800 $ 926,284 $ 929,384
Due after one year
through five years 505,403 530,150 7,001,722 6,976,280
Due after five years
through ten years - - 1,000,000 1,015,600
---------- ---------- ---------- ----------
1,005,570 1,032,950 8,928,006 8,921,264
Mortgage-backed
securities 9,314,136 9,556,458 15,932,166 15,932,412
---------- ---------- ---------- ----------
$10,319,706 $10,589,408 $24,860,172 $24,853,676
========== ========== ========== ==========
Proceeds from the sale of securities available for sale during the years ended
December 31 were $2,710,541 (1996) and $5,459,431 (1995) with gross gains of
$0 (1996) and $4,723 (1995) and gross losses of $5,596 (1996) and $3,336
(1995) realized on the sales.
At December 31, the Company had investments with a carrying value of
$9,325,332 (1996) and $2,531,328 (1995) pledged for public deposits in excess
of $100,000. Fair value of the investments at December 31 were $9,337,688
(1996) and $2,583,850 (1995).
-23-
<PAGE>
<PAGE>
NOTE 3 - LOANS RECEIVABLE
December 31,
1996 1995
---------- ----------
Real estate loans:
One-to-four family $28,745,064 $22,418,400
Multi-family 225,449 321,995
Construction 220,000 405,300
Other 3,937,312 799,742
Other loans:
Consumer - auto 1,279,258 1,111,924
Home improvement and second mortgages 784,901 655,539
Other non-mortgage 295,603 446,842
Commercial 228,347 -
Loans on deposits 225,599 199,355
---------- ----------
35,941,533 26,359,097
Less:
Allowance for estimated loan losses (415,447) (423,079)
Deferred loan fees (88,734) (85,328)
Unearned discounts (3,859) (3,717)
Undisbursed loans in process (168,215) (333,273)
---------- ----------
$35,265,278 $25,513,700
========== ==========
A summary of the changes in the allowance for loan losses is as follows:
Year Ended December 31,
1996 1995
-------- --------
Beginning of the period $423,079 $442,379
Provision for losses - -
Loan charge-offs (7,632) (20,000)
Recoveries - 700
-------- --------
$415,447 $423,079
======== ========
At December 31, non-accrual loans were approximately $35,000 (1996) and
$23,000 (1995). Foregone interest on these loans for the years ended December
31 was $3,400 (1996) and $1,100 (1995).
Loans serviced by the Company for the benefit of others at December 31 were
$171,770 (1996) and $239,797 (1995).
NOTE 4 - REAL ESTATE OWNED AND IN JUDGMENT
December 31,
1996 1995
--------- ---------
Real estate owned $ 32,201 $113,250
Real estate in judgment 18,207 124,203
------- -------
50,408 237,453
Less allowance for loss on real estate (32,201) (32,201)
------- -------
$18,207 $205,252
======= ========
-24-
<PAGE>
<PAGE>
A provision for loss on real estate is charged to operations when
circumstances indicate an additional loss subsequent to acquisition. A summary
of the changes in the allowance for loss on real estate is as follows:
Year Ended December 31,
1996 1995
------------ ------------
Beginning of period $32,201 $32,201
Provision charged to earnings - -
Charge-offs (recoveries) - -
------ ------
$32,201 $32,201
====== ======
NOTE 5 - ACCRUED INTEREST RECEIVABLE
December 31,
1996 1995
------------ ------------
Loans receivable $203,502 $157,010
Mortgage-backed securities 153,991 104,103
Other securities 186,322 253,995
Other interest earning assets 5,709 1,414
------- -------
$549,524 $516,522
======= =======
NOTE 6 - OFFICE PROPERTY AND EQUIPMENT
December 31,
1996 1995
------------ ------------
Land $ 65,776 $ 65,776
Building and improvements 1,095,749 1,073,839
Furniture, fixtures and equipment 626,624 575,563
--------- ---------
1,788,149 1,715,178
Less accumulated depreciation (866,468) (753,551)
--------- ---------
$ 921,681 $ 961,627
========= =========
Depreciation expense for the years ended December 31 was $112,916 (1996) and
$106,952 (1995).
NOTE 7 - DEPOSITS
<TABLE>
<CAPTION>
December 31,
Weighted 1996 1995
Average Rate ------------------- --------------------
December 31, 1996 Amount Percent Amount Percent
----------------- ---------- ------- ----------- -------
<S> <C> <C> <C> <C> <C>
Negotiable order of
withdrawal accounts
(NOW):
Non-interest bearing - % $ 367,480 .8% $ 95,320 .2%
Interest bearing .880 2,490,153 5.1 1,931,827 4.3
Super NOWs 2.891 1,739,165 3.6 1,592,693 3.6
Money market 3.579 2,897,734 6.0 2,201,646 4.9
Savings 2.750 5,072,180 10.5 5,326,429 12.0
---------- ---- ---------- ----
12,566,712 26.0 11,147,915 25.0
---------- ---- ---------- ----
</TABLE>
-25-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
December 31,
Weighted 1996 1995
Average Rate ----------------------------------------
December 31, 1996 Amount Percent Amount Percent
----------------- ----------- ------- ----------- -------
<S> <C> <C> <C> <C> <C>
Certificates of
deposit
3.001% - 4.000% 4.000 512,728 1.0 113,813 .3
4.001% - 5.000% 4.884 11,111,441 22.9 6,237,704 14.0
5.001% - 6.000% 5.472 23,224,499 47.8 25,600,685 57.4
6.001% - 7.000% 6.258 1,072,677 2.2 1,438,182 3.2
7.001% - 8.000% 7.100 45,000 .1 45,000 .1
---------- ------ ---------- ------
35,966,345 74.0 33,435,384 75.0
---------- ------ ---------- ------
$48,533,057 100.0% $44,583,299 100.0%
========== ====== ========== ======
</TABLE>
At December 31, 1996, scheduled maturities of certificates of deposit were as
follows:
1997 1998 1999 2000 Total
------------ ---------- ---------- ---------- -----------
3.001% - 4.000% $ 512,728 $ - $ - $ - $ 512,728
4.001% - 5.000% 10,979,449 131,992 - - 11,111,441
5.001% - 6.000% 18,000,624 4,289,685 545,560 388,630 23,224,499
6.001% - 7.000% 800,164 - 272,513 - 1,072,677
7.001% - 8.000% 45,000 - - - 45,000
---------- --------- ------- ------- ----------
$30,337,965 $4,421,677 $818,073 $388,630 $35,966,345
========== ========= ======= ======= ==========
Interest expense on deposits is summarized as follows:
Year ended December 31,
1996 1995
---------- ----------
Money market $ 69,034 $ 76,886
Savings 143,771 149,713
NOW 37,417 24,566
Super NOW 38,821 37,773
Certificates of deposit 1,793,603 1,785,862
--------- ---------
$2,082,646 $2,074,800
========= =========
The Federal Deposit Insurance Corporation (FDIC), an agency of the U.S.
Government, insures all depositors up to $100,000 in accordance with the rules
and regulations of the FDIC. Deposits in excess of $100,000 at December 31
were $9,245,806 (1996) and $3,504,461 (1995).
NOTE 8 - ADVANCES FROM FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank (FHLB) at December 31 were
$23,460,492 (1996) and $7,000,000 (1995).
Maturity schedule at December 31, 1996 follows:
1997 5.14% - 6.00% $21,534,625
1998 6.14% 1,000,000
2016 5.96% 925,867
----------
$23,460,492
==========
Pursuant to a blanket pledge agreement with the FHLB, advances are secured by
all stock in the FHLB, real estate loans and other nonpledged securities.
-26-
<PAGE>
<PAGE>
NOTE 9 - INCOME TAXES
The provisions for federal income taxes are as follows:
Year ended December 31,
1996 1995
---------- ----------
Current $234,073 $275,636
Deferred 42,000 54,000
------- -------
$276,073 $329,636
======= =======
Deferred income taxes and benefits are provided for significant income and
expense items recognized in different years for tax and financial reporting
purposes. Temporary differences which give rise to significant deferred tax
assets (liabilities) follow:
December 31,
1996 1995
---------- -----------
Joint Venture income $ 10,000 $ 9,000
Loan origination fees 6,000 6,000
Bad debt reserve 18,000 -
Valuation allowance - -
-------- --------
Total Deferred Assets 34,000 15,000
-------- --------
Federal Home Loan Bank stock dividends (287,000) (235,000)
Net unrealized gain on available for sale securities (123,440) (180,914)
Accelerated depreciation (34,000) (25,000)
-------- --------
Total Deferred Liabilities (444,440) (440,914)
-------- --------
Net Deferred Liabilities $(410,440) $(425,914)
======== ========
Total income tax expense differed from the amounts computed by applying the
U.S. federal income tax rate of 34 percent in 1996 and 1995 to income before
income taxes as a result of the following:
1996 1995
---------- ----------
Normal "expected" corporate taxes $277,500 $333,000
Change in tax provision resulting from:
Bad debt deduction based on tax methods - (22,000)
Other (1,427) 18,636
------- -------
$276,073 $329,636
======= =======
The Company and subsidiaries file a consolidated income tax return on a
calendar year basis. The Bank has met certain definitions and other conditions
prescribed by the Internal Revenue Service which permitted annual bad debt
deductions (not related to amount of losses actually anticipated and charged
to earnings) in computing taxable income. Included in retained earnings of the
Company at December 31, 1996 is the accumulation of such bad debt deductions
of approximately $2,172,000, for which no provision for income taxes has been
made. If, in the future, these amounts are treated as being used for any
purpose other than to absorb losses on bad debts, the federal tax liability
will be imposed on these amounts at the then current tax rates. The Company is
not subject to state income taxes.
-27-
<PAGE>
<PAGE>
NOTE 10 - RELATED PARTY TRANSACTIONS
The Company has had, and may be expected to have in the future, financial
transactions in the ordinary course of business with directors, principal
officers, their immediate families and affiliated companies in which they are
principal stockholders (commonly referred to as related parties), all of which
have been made in compliance with federal regulations.
Activity in loans to related parties for the year ended December 31:
1996 1995
---------- ----------
Balance, beginning of year $289,897 $350,955
New loans 6,300 3,400
Repayments (86,458) (64,458)
------- -------
Balance, end of year $209,739 $289,897
======= =======
Terms and rates of interest on deposit accounts of directors and officers are
substantially the same as those extended to unrelated Company customers. At
December 31 deposits of related parties totaled $429,917 (1996) and $158,063
(1995).
NOTE 11 - EMPLOYEE RETIREMENT PLAN
The Company'sponsors a 401(k) plan where the Company matches up to 3% of the
employees qualifying compensation. Employees may contribute up to 12% of their
qualifying compensation. The Company's expense was $15,632 (1996) and $12,953
(1995).
NOTE 12 - STOCK BENEFIT PLANS
As part of the mutual-to-stock conversion, the Company established a stock
option plan, an employee stock ownership plan and a management stock bonus
plan for the benefit of the directors, officers and employees of the Company.
Stock Option Plan
The Company has adopted a stock option plan (Option Plan). Pursuant to the
Option Plan, stock options of 74,750 common shares may be granted to directors
and officers of the Bank. Options granted under the Option Plan may be either
options that qualify as Incentive Stock Options as defined in Section 422 of
the Internal Revenue Code of 1986, as amended, or options that do not qualify.
In the event of a change in control, as defined, all options are immediately
exercisable.
-28-
<PAGE>
<PAGE>
On September 28, 1993, qualified stock options were granted for the purchase
of 71,761 shares exercisable at the market price at the date of grant of $10
per share. All options expire ten years from the date of the grant. At
December 31, 1996, none of the options had been exercised. The options vest
over a 5 year period. As of December 31, 66,378 (1996) and 44,252 (1995)
options were vested.
Employee Stock Ownership Plan
The Company'sponsors an employee stock ownership plan (ESOP). The Company
issued stock for a note payable, which is unconditionally guaranteed by the
Bank. The note is at prime (determined at the beginning of each quarter),
payable quarterly through 2003. The ESOP's loan payments are provided by the
Bank's contributions to the ESOP and dividends on the Company's stock held by
the ESOP's Trustee. The unallocated shares held by the ESOP are excluded in
the Company's earnings per share computations.
Since the Bank guarantees the note, the receivable is reflected as a reduction
of stockholders equity in the consolidated financial statements. At December
31 the balance was $403,650 (1996) and $463,450 (1995). The ESOP covers
substantially all employees. The Bank's ESOP contributions are based on the
note s scheduled principal and interest payments, net of the Company's cash
dividends paid to the ESOP. The released stock is allocated based upon the
ratio of each participating employee s eligible compensation to total eligible
compensation. The shares held by the ESOP are released in the proportion each
year s principals payment bears to the total principal payments due. This is
currently scheduled as 5,980 shares per year.
The Bank's ESOP contributions are recorded as compensation expense and totaled
$114,197 (1996) and $122,253 (1995). Dividends used to satisfy note payments
were $29,678 (1996) and $26,910 (1995). As of December 31, 1996, the ESOP held
40,365 unallocated shares. The unallocated shares fair value at December 31
(based on NASDAQ) was $736,661 (1996) and $765,596 1995).
Management Stock Bonus Plan
The Company and Bank have adopted a Management Stock Bonus Plan (MSBP) to
enable the Bank to attract and retain experienced and capable personnel in key
positions of responsibility. A total of 29,900 shares of restricted stock were
awarded on September 28, 1993, the conversion date, in the form of restricted
stock payable over a five-year vesting period, at 20 percent per year,
beginning September 28, 1994. The Company will recognize compensation expense
in the amount of the fair market value of the common stock at the grant date,
prorata over the years during which the shares are payable. The unvested
shares are entitled to all voting and other stockholder rights, except that
the shares, while restricted, cannot be sold, pledged or otherwise disposed
of, and are required to be held in escrow.
If a holder of restricted stock under the MSBP terminates employment for
reasons other than death, disability, retirement or change in control of the
Company, such employee forfeits all rights to any allocated shares which are
still restricted. If termination is caused by death, disability, retirement or
change in control of the Company, all allocated shares become unrestricted.
The MSBP shares purchased in the conversion were initially excluded from
stockholders' equity. The unamortized deferred compensation related to the
MSBP conversion is deducted from stockholders' equity.
-29-
<PAGE>
<PAGE>
NOTE 13 - REGULATORY CAPITAL
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators. These actions, if undertaken, could have a direct material effect
on the Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, banks must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. Bank's capital amounts and classifications
are also subject to qualitative judgments by the regulators about components,
risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require banks to maintain minimum amounts and ratios of total and Tier 1
capital (as defined in the regulations) to risk-weighted assets (as defined).
Management believes that, as of December 31, 1996, the Bank meets all capital
adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from applicable
regulatory agencies categorize the Bank as adequately capitalized
under the regulatory framework for prompt corrective action. To be categorized
as adequately capitalized, the Bank must maintain minimum ratios as set
forth in the following table.
To Be Well
Capitalized Under
For Capital Prompt Corrective
As of December 31, 1996 Actual Adequacy Purposes Action Provisions
(dollars in thousands) Dollars Ratio Dollars Ratio Dollars Ratio
- ----------------------- --------- ----- --------- ----- --------- ------
Total Adjusted Capital
(to risk weighted assets) $11,145 34.4% $2,592 8.0% $3,240 10.0%
Tier 1 Capital
(to risk weighted assets) $10,740 33.2% $ 972 3.0% $1,944 6.0%
Tier 1 Capital
(to adjusted total assets) $10,740 12.6% $3,397 4.0% $4,246 5.0%
Also, the Bank's tangible equity and tangible capital ratios were both 12.7%
at December 31, 1996, which exceeds the requirement for capital adequacy
purposes of 2% and 1.5%, respectively.
-30-
<PAGE>
<PAGE>
NOTE 14 - CONCENTRATION OF CREDIT RISK
In the normal course of business, the Company enters into commitments to
extend credit with off-balance-sheet risk to meet the financing needs of its
customers. Commitments to extend credit are agreements to lend to a customer
as long as there is no violation of any condition established in the
commitment. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. As some commitments
normally expire without being drawn upon, the total commitment amount does not
necessarily represent future cash requirements.
The Company evaluates each customer's credit worthiness on a case-by-case
basis, using the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments. The amount of
collateral obtained, if deemed necessary by the Company upon extension of
credit, is based upon management's credit evaluation. The Company's
underwriting policies for mortgage loans generally require a maximum loan-
to-value of 80% for owner occupied residential loans and 75% on non-owner
occupied one-to-four family loans. Owner occupied residential loans in excess
of 80% are generally required to obtain private mortgage insurance.
The Company had the following commitments at December 31, 1996:
Loan commitments $636,500
Available overdraft protection $407,900
The loan commitments ($61,000 fixed rate and $575,500 adjustable rate) are at
interest rates ranging from 8.00% to 9.25%.
The Company's loans and commitments include commitments to purchase
loans in western Colorado ($471,000) and northern New Mexico ($105,000) as
well as commitments to extend credit to customers in the Company's market
area. The market area primarily consists of eastern Wyoming. Agriculture and
related support industries are a significant factor in the primary market
area's economy.
The loans purchased in Colorado, through a mortgage banking relationship,
are located in various resort areas and comprise approximately 33% of the
Company's one-to-four family mortgages and approximately 27% of the
total loan portfolio.
-31-
<PAGE>
<PAGE>
NOTE 15 - CONTINGENCIES
The Bank sponsors a self-insured health plan for eligible employees. The Plan
provides for payment by the Bank of health claims up to $3,000 per eligible
employee, with reinsurance coverage for all claims greater than $3,000. An
estimate of claims incurred but not reported and claims reported but not
funded is included in accounts payable at December 31, 1996 and 1995.
In the normal course of business, the Company is involved in various legal
actions arising from its lending and collection activities. In the opinion
of management, the outcome of these legal actions will not significantly
affect the consolidated financial position of the Company.
NOTE 16 - STOCKHOLDERS' EQUITY
Formation and Mutual-to-Stock Conversion
In May 1993, the Company was formed to acquire 100 percent of the capital
stock of Tri-County Federal Savings and Loan Association upon its conversion
from the mutual to stock form of ownership. The conversion and the Company's
common stock offering were completed September 28, 1993. At that time, the
Company sold 747,500 shares of its $0.10 par value common stock and received
net proceeds of $7,017,972. The Company transferred $3,506,316 to the Bank
in exchange for all of the Bank's common stock.
In September, 1993, the Bank segregated and restricted $6,432,095, the amount
of its regulatory capital at March 31, 1993, in a liquidation account to
provide a limited priority claim to the assets of the Bank to eligible account
holders who continued to maintain their accounts at the Bank after the
conversion. In the unlikely event of a complete liquidation of the Bank
subsequent to the conversion, each eligible account holder will be entitled
to a distribution from the liquidation account in an amount proportionate
to their remaining balances of qualifying deposits. The liquidation account
is reduced annually to the extent that eligible account holders have reduced
their qualifying deposits. At December 31, the balance of the liquidation
account was $2,455,053 (1996) and $2,797,798 (1995).
Dividend Restrictions
Under current regulations, the Bank is not permitted to pay dividends on its
stock after the conversion if its regulatory capital would thereby be reduced
below (1) the amount then required for the aforementioned liquidation account
or (2) the Bank's regulatory capital requirements. As a "Tier 1" institution
(an institution with capital in excess of its capital requirements, both
immediately before the proposed capital distribution and after giving effect
to such distribution), the Bank may make capital distributions without the
prior consent of the OTS in any calendar year, provided the capital
-32-
<PAGE>
<PAGE>
distribution does not exceed the greater of 100% of net income for the year to
date plus 50% of the amount by which the lesser of the Bank's tangible core or
risk-based capital exceeds its capital requirement for such capital
commitments, as measured at the beginning of the calendar year or up to 75% of
net income over the most recent four-quarter period. Federal regulations also
preclude any repurchase of the stock for three years after the conversion
except for an offer made on a prorata basis to all stockholders of the Company
and with prior approval of the OTS.
NOTE 17 - FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures About Fair Value of Financial Instruments, requires
that the Company disclose fair value information about financial instruments
for which it is practicable to estimate the value, whether or not such
financial instruments are recognized on the consolidated balance sheet. Fair
value is the amount at which a financial instrument could be exchanged in a
current transaction between willing parties, other than in a forced sale or
liquidation, and is best evidenced by a quoted market price, if one exists.
Fair value estimates are made as of a specific point in time based on the
characteristics of the financial instruments and relevant market information.
Where available, quoted market prices are used. In other cases, fair values
are based on estimates using present value or other valuation techniques.
These techniques involve uncertainties and are significantly affected by the
assumptions used and judgments made regarding risk characteristics of various
financial instruments, discount rates, estimates of future cash flows, future
expected loss experience and other factors. Changes in assumptions could
significantly affect these estimates and the resulting fair values. Derived
fair value estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in an immediate sale of the
instrument. Also, because of differences in methodologies and assumptions used
to estimate fair values, the Company's fair values should not be compared to
those of other financial institutions.
Fair value estimates are based on existing financial instruments without
attempting to estimate the value of anticipated future business and the value
of assets and liabilities that are not considered financial instruments.
Accordingly, the aggregate fair value amounts presented do not purport to
represent the underlying market of the Company.
The fair value of certain financial assets carried at cost, including cash
and due from banks, deposits with banks, Federal Home Loan Bank stock and
accrued interest receivable is considered to approximate their respective
book values due to their short-term nature and negligible credit losses. In
addition, as discussed in Note 1, the Company valued loans held for sale at
fair value.
Fair values for available for sale securities are based on quoted market
prices of dealer quotes. If quoted prices are not available for the specific
security, fair values are based on quoted market prices of comparable
instruments.
For variable rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying amounts. The fair
values for other loans are estimated using a discounted cash flow analysis,
based on interest rates currently offered for loans with similar terms to
borrowers of similar credit quality. Loan fair value estimates include
judgments regarding future expected loss experience and risk characteristics.
Fair value of commitments to extend credit is considered to be the related fee
the Company would earn should the commitment be fulfilled and is considered
immaterial for disclosure.
-33-
<PAGE>
<PAGE>
The fair value of accounts payable, accrued liabilities and accrued interest
payable is considered to approximate their respective book values due to their
short-term nature. By definition, fair values of deposits with no stated
maturities, such as demand deposits, savings and NOW accounts and money market
deposit accounts are equal to the amounts payable on demand at the reporting
date.
The fair values of fixed rate deposits are based on discounted cash flows
using rates currently offered for deposits of similar remaining maturities.
The fair value of long-term debt with fixed rates is based on quoted market
prices for similar issues, or current rates offered to the Company for debt
of the same remaining maturity. For long-term debt with floating rates, fair
value and carrying value are considered the same.
The estimated fair values for the Company's financial instruments were as
follows at December 31, 1996:
Carrying Fair
Amount Value
----------- -----------
Financial assets
Assets for which fair value
approximates book value $ 2,928,116 $ 2,928,116
Securities 45,459,821 45,729,523
Loans 35,265,278 35,371,313
Financial liabilities
Liabilities for which fair value
approximates book value 12,722,895 12,722,895
Time deposits 35,966,345 36,045,962
Long-term debt 23,460,492 23,380,663
-34-
<PAGE>
<PAGE>
NOTE 18 - PARENT COMPANY FINANCIAL INFORMATION
CONDENSED PARENT COMPANY ONLY
STATEMENTS OF CONDITION
at December 31,
1996 1995
----------- -----------
Assets
Cash $ 613,000 $ 215,752
Investment in subsidiary 11,246,946 11,688,762
Securities available for sale 1,129,983 1,332,858
Other assets, net 13,908 29,489
---------- ----------
Total Assets $13,003,837 $13,266,861
========== ==========
Liabilities and stockholders' equity
Other liabilities $ - $ 8,350
Stockholders' equity 13,003,837 13,258,511
---------- ----------
Total Liabilities and Stockholders' Equity $13,003,837 $13,266,861
========== ==========
STATEMENTS OF OPERATIONS
For the year ended December 31,
1996 1995
----------- -----------
Revenue
Equity in earnings of subsidiary $ 512,482 $ 610,607
Other income 105,989 136,500
Expense
Operating expenses (79,357) (79,641)
Income tax (expense) benefit 1,035 (18,136)
---------- ----------
Net Income $ 540,149 $ 649,330
========== ==========
STATEMENTS OF CASH FLOWS
For the year ended December 31,
1996 1995
----------- -----------
Operating activities
Net income $ 540,149 $ 649,330
Adjustments to reconcile net income to net
cash provided by operating activities:
Earnings of subsidiary (512,482) (610,607)
Amortization of organization expense 1,068 1,068
Loss on sale of securities 1,593 3,336
(Increase) decrease in other assets and
accrued liabilities 6,601 (32,163)
---------- ----------
Net Cash Provided by Operating Activities 36,929 10,964
---------- ----------
Investing activities
Sale of securities available for sale 200,000 474,507
Dividends received 1,000,000 300,000
---------- ----------
Net Cash Provided by Investing Activities 1,200,000 774,507
---------- ----------
Financing activities
Dividends paid (312,385) (242,847)
ESOP payments received 59,800 59,800
Treasury stock purchased (587,096) (495,182)
---------- ----------
Net Cash Used by Financing Activities (839,681) (678,229)
---------- ----------
Net Increase in Cash 397,248 107,241
Cash and cash equivalents - beginning of period 215,752 108,510
---------- ----------
Cash and cash equivalents - end of period $ 613,000 $ 215,752
========== ==========
-35-
<PAGE>
<PAGE>
DIRECTORS
LARRY C. GODDARD, Chairman
ROBERT L. SAVAGE, President & Chief Executive Officer
CARL F. RUPP, Secretary
LANCE H. GRIGGS
DAVID C. KELLAM
WILLIAM J. RUEB
AUDITORS
DALBY, WENDLAND & CO., P.C.
464 Main Street, P.O. Box 430
Grand Junction, Colorado 81502
LEGAL COUNSEL SPECIAL COUNSEL
JOHN B. PATRICK MALIZIA, SPIDI, SLOANE & FISCH P.C.
Patrick and Korrell Attorneys 1301 K Street, N.W., Suite 700 E
241 East 21st Avenue Washington, D.C. 20005
Torrington, Wyoming 82240
REGISTRAR AND STOCK TRANSFER AGENT
Inquiries regarding stock transfer, registration, lost certificates or
changes in name and/or address should be directed to the stock transfer
agent and registrar in writing.
ATTN: Investor Relations
AMERICAN SECURITIES TRANSFER, INCORPORATED
938 Quail Street, Suite 101
Lakewood, Colorado 80215-5513
MARKET MAKERS
As of December 31, 1996, the following firms were market makers in the
Company's shares:
The Chicago Corporation - Chicago, Illinois
Friedman, Billings, Ramsey & Co., Inc. - Washington, D.C.
Herzog, Heine and Geduld - New York, New York
FORM 10-KSB
A copy of Form 10-KSB for the year ended December 31, 1996, excluding
exhibits, as filed with the Securities and Exchange Commission, will be
furnished without charge to stockholders as of the record date upon
request to the Secretary, Tri-County Bancorp, Inc., P.O. Box 1057,
Torrington, Wyoming 82240.
-36-
<PAGE>
<PAGE>
MAIN OFFICE BRANCH OFFICE
2201 Main Street, P.O. Box 1057 957 Maple, P.O. Box 337
Torrington, Wyoming 82240 Wheatland, Wyoming 82201
Telephone - (307) 532-2111 Telephone - (307) 322-9215
Fax - (307) 532-7631 Fax - (307) 322-4080
Email - [email protected]
EXECUTIVE OFFICERS
Robert L. Savage
President & Chief Executive Officer
Earl F. Warren, Jr.
Senior Vice President
Tommy A. Gardner
Vice President & Chief Financial Officer
STAFF
Roseanne L. Burnett, Vice President & Branch Manager
Jane E. Faber, Assistant Secretary
Richard R. Yates, Vice President
Colleen M. Holtzclaw
Nancy A. Martin
Terri J. Pindell
Denny L. Ramos
Becky J. Shaffer
Linda L. Smith
Darlene L Sorge
Debra K. Stoeger
Lynette K. Strecker
Diana R. Toner
Scott L. Vasko
Mona Kay Williams
Amber M. Yergler
-37-
EXHIBIT 23
Consent of Dalby, Wendland & Co., P.C.
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statement
of Tri-County Bancorp, Inc. on Form S-8 (originally filed with the Securities
and Exchange Commission on October 24, 1994) of our report dated February 7,
1997, included in this Annual Report on Form 10-KSB of Tri-County Bancorp, Inc.
for the calendar year ended December 31, 1996.
Grand Junction, Colorado
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Dec-31-1996
<CASH> 537,195
<INT-BEARING-DEPOSITS> 1,751,397
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 35,140,115
<INVESTMENTS-CARRYING> 10,319,706
<INVESTMENTS-MARKET> 10,589,408
<LOANS> 35,265,278
<ALLOWANCE> 415,447
<TOTAL-ASSETS> 85,888,081
<DEPOSITS> 48,533,057
<SHORT-TERM> 21,217,625
<LIABILITIES-OTHER> 24,209,460
<LONG-TERM> 2,242,867
0
0
<COMMON> 74,750
<OTHER-SE> 13,070,814
<TOTAL-LIABILITIES-AND-EQUITY> 85,888,081
<INTEREST-LOAN> 2,632,609
<INTEREST-INVEST> 2,828,740
<INTEREST-OTHER> 32,553
<INTEREST-TOTAL> 5,493,902
<INTEREST-DEPOSIT> 2,082,646
<INTEREST-EXPENSE> 943,600
<INTEREST-INCOME-NET> 2,467,656
<LOAN-LOSSES> 0
<SECURITIES-GAINS> (5,596)
<EXPENSE-OTHER> 1,810,702
<INCOME-PRETAX> 816,222
<INCOME-PRE-EXTRAORDINARY> 540,149
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 540,149
<EPS-PRIMARY> 0.90
<EPS-DILUTED> 0.88
<YIELD-ACTUAL> 3.21
<LOANS-NON> 34,751
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 166,087
<ALLOWANCE-OPEN> 423,079
<CHARGE-OFFS> 7,633
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 415,447
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 415,447
</TABLE>
