SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission file number 0-22220
TRI-COUNTY BANCORP, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
WYOMING
(State or Other Jurisdiction of Incorporation or Organization)
83-0304855
(I.R.S. Employer Identification No.)
2201 MAIN STREET, TORRINGTON, WY 82240
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code (307) 532-2111
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
The number of shares outstanding of each of the issuer's classes of common stock
as of August 7, 1998.
Class Outstanding
$.10 par value common stock 1,167,498 shares
Transitional Small Business Disclosure Format (check one): Yes No X
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TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Financial
Condition as of June 30, 1998 (unaudited)
and December 31, 1997..............................................3
Condensed Consolidated Statements of Operations
for the Three Months and Six Months Ended June 30, 1998
and 1997 (unaudited)...............................................4
Condensed Consolidated Statements of Stockholder's Equity
for the Six Months Ended June 30, 1998 (unaudited).................5
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1998
and 1997 (unaudited)...............................................6
Notes to Condensed Consolidated Financial Statements...............7
Item 2. Management's Discussion and Analysis or Plan
of Operation.......................................................9
PART II OTHER INFORMATION
Item 1. Legal Proceedings.........................................17
Item 2. Changes in Securities.....................................17
Item 3. Default Upon Senior Securities............................17
Item 4. Submissions of Matters to a Vote of Security Holders......17
Item 5. Other Information.........................................17
Item 6. Exhibits and Reports on Form 8-K..........................17
SIGNATURES........................................................18
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1998 1997
(unaudited)
------------ -----------
<S> <C> <C>
Cash $ 485,471 $ 758,398
Interest earning deposits at other financial institutions 5,054,233 1,880,407
Securities available-for-sale 32,234,461 36,526,012
Securities held-to-maturity, market value of $7,005,664 (1998) and
$8,260,991 (1997) 6,825,657 7,987,250
Loans receivable, net 40,210,594 40,425,288
Loans held for resale 373,657 117,111
Office property and equipment, net 843,659 886,879
Prepaid expenses and other assets 521,689 1,379,180
----------- -----------
Total Assets $86,549,421 $89,960,525
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits $ 802,122 $ 541,510
Savings and NOW deposits 13,506,298 12,504,022
Time deposits 31,285,850 32,359,696
----------- -----------
Total Deposits 45,594,270 45,405,228
----------- -----------
Advance from Federal Home Loan Bank 25,622,867 29,696,616
Advances by borrowers for taxes and insurance 114,266 101,267
Accounts payable and accrued expenses 307,275 269,105
Deferred income taxes 679,127 661,125
----------- -----------
Total Liabilities 72,317,805 76,133,341
----------- -----------
Stockholders' Equity
Preferred stock, $.10 par value, 5,000,000 shares authorized,
none issued 0 0
Common stock, 10,000,000 share of $.10 par value authorized,
1,495,000 (1998) and 1,495,000 (1997) shares issued 149,500 149,500
Additional paid in capital 7,152,276 7,100,600
Retained earnings - substantially restricted 9,006,760 8,792,947
Unearned compensation relating to Management Stock Bonus Plan
and ESOP (328,675) (388,025)
Unrealized gain/(loss) on securities available-for-sale, net
of tax 897,069 817,476
Treasury stock, 327,502 (1998) and 327,502 (1997) shares, at
cost (2,645,314) (2,645,314)
----------- -----------
Total Stockholders' Equity 14,231,616 13,827,184
----------- -----------
Total Liabilities and Stockholders' Equity $86,549,421 $89,960,525
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
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TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest Income
Loans $ 873,719 $ 749,565 $1,731,371 $1,488,061
Securities available-for-sale 535,015 653,333 1,104,756 1,238,758
Securities held-to-maturity 130,655 184,940 275,008 375,524
Other interest earning assets 29,651 8,910 46,634 20,886
---------- ---------- ---------- ----------
Total Interest Income 1,569,040 1,596,748 3,157,769 3,123,229
---------- ---------- ---------- ----------
Interest Expense
Deposits 515,787 546,399 1,026,471 1,093,218
Advances and other borrowings 391,032 381,904 788,420 697,926
---------- ---------- ---------- ----------
Total Interest Expense 906,819 928,303 1,814,891 1,791,144
---------- ---------- ---------- ----------
Net Interest Income 662,221 668,445 1,342,878 1,332,085
Provision for credit losses -- -- -- --
---------- ---------- ---------- ----------
Net Interest Income After
Provision for Credit Losses 662,221 668,445 1,342,878 1,332,085
---------- ---------- ---------- ----------
Non-interest Income
Gain on sale of loans 19,084 6,452 25,744 16,403
Gain(loss) on sale of available-for-sale
securities -- 1,172 -- 1,172
Service charges on deposits 28,537 28,135 57,799 56,316
Other, net 6,462 11,486 10,937 15,947
---------- ---------- ---------- ----------
Total Non-interest Income 54,083 47,245 94,480 89,838
---------- ---------- ---------- ----------
Non-interest Expense
Compensation and benefits 209,476 195,993 418,939 385,593
Occupancy and equipment 80,235 86,073 160,662 161,865
Federal deposit insurance premium 7,031 7,964 14,500 15,315
Other, net 98,766 92,157 189,669 181,457
---------- ---------- ---------- ----------
Total Non-interest Expense 395,508 382,187 783,770 744,230
---------- ---------- ---------- ----------
Earnings Before Income Taxes 320,796 333,503 653,588 677,693
Income taxes 93,600 90,400 194,600 205,652
---------- ---------- ---------- ----------
Net Earnings(Loss) $ 227,196 $ 243,103 $ 458,988 $ 472,041
========== ========== ========== ==========
Earnings(Loss) Per Common Share - Primary $0.19 $0.20 $0.39 $0.39
===== ===== ===== =====
Cash Dividend Paid Per Common Share $0.11 $0.08 $0.21 $0.15
===== ===== ===== =====
</TABLE>
See notes to condensed consolidated financial statements.
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TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Six Months Ended June 30, 1998
(unaudited)
<TABLE>
<CAPTION>
Unrealized
Employee Gain on
Additional Stock MSBP Securities
Common Paid-In Retained Ownership Unearned Available- Treasury
Stock Capital Earnings Plan Compensation for-sale Stock Total
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1997 $149,500 $7,100,600 $8,792,947 $(343,850) $(44,175) $817,476 $(2,645,314) $13,827,184
Net earnings -- -- 458,988 -- -- -- -- 458,988
Repayment of ESOP debt -- -- -- 29,900 -- -- -- 29,900
Allocation of ESOP shares -- 51,676 -- -- -- -- -- 51,676
Amortization of deferred
compensation -- -- -- -- 29,450 -- -- 29,450
Change in unrealized gain on
securities available-for-sale,
net of tax -- -- -- -- -- 79,593 -- 79,593
Dividends paid - cash -- -- (245,175) -- -- -- -- (245,175)
Treasury stock purchased -- -- -- -- -- -- -- --
Dividends paid - stock -- -- -- -- -- -- -- --
-------- --------- ---------- --------- -------- -------- ----------- -----------
Balance - June 30, 1998 $149,500 $7,152,27 $9,006,760 $(313,950) $(14,725) $897,069 $(2,645,314) $14,231,616
======== ========= ========== ========= ======== ======== =========== ===========
</TABLE>
See notes to consolidated condensed financial statements.
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TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1998 1997
---------- ----------
<S> <C> <C>
Net Cash Provided by Operations $1,180,229 $ 482,281
Investing Activities
Principal payments received on held-to-maturity securities 1,235,699 1,404,137
Purchase of held-to-maturity securities (75,000) --
Purchase of available-for-sale securities (7,398,590) (6,626,825)
Sale of available-for-sale securities -- 1,927,850
Principal payments received on available-for-sale securities 11,845,194 786,017
Net decrease(increase) in loans 3,586,091 (137,622)
Purchase of loans (3,371,397) (1,448,720)
Proceeds from sale of real estate owned -- 52,392
Investment in property and equipment and real estate owned (14,421) (69,087)
---------- ----------
Net Cash Provided (Used) by Investing Activities 5,807,576 (4,111,858)
Financing Activities
Net increase (decrease) in deposits 189,115 (1,691,314)
Net increase (decrease) in advances from borrowers for
taxes and insurance 13,000 13,404
FHLB borrowings 9,500,000 28,450,000
Repayment of FHLB advance (13,573,748) (23,823,750)
Payments received from ESOP 29,900 21,064
Treasury stock purchased -- --
Cash dividends paid (245,175) (182,625)
---------- ----------
Net Cash Provided (Used) by Financing Activities (4,086,908) 2,786,779
---------- ----------
Increase (Decrease) in Cash and Cash Equivalents 2,900,897 (842,798)
Cash and cash equivalents - beginning of period 2,638,807 2,288,592
---------- ----------
Cash and cash equivalents - end of period $5,539,704 $1,445,794
========== ==========
Supplemental Disclosures
Cash paid for:
Interest 1,819,710 1,811,574
Income taxes 257,300 221,300
</TABLE>
See notes to consolidated condensed financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(unaudited)
NOTE 1 - BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements include the accounts
of Tri-County Bancorp, Inc. (the "Company"), Tri-County Federal Savings Bank
(the "Bank") and First Tri-County Services, Inc. All significant intercompany
balances and transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements were
prepared in accordance with generally accepted accounting principles for interim
financial information and with instructions for Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all information and disclosures
required by generally accepted accounting principles for complete financial
statements. The accompanying consolidated financial statements do not purport to
contain all the necessary financial disclosures required by generally accepted
accounting principles that might otherwise be necessary in the circumstances and
should be read together with the 1997 consolidated financial statements and
notes thereto of Tri-County Bancorp, Inc. and Subsidiaries included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1997.
However, all normal recurring adjustments have been made which, in the opinion
of Management, are necessary to the fair presentation of the financial
statements.
The results of operations for the six-month period ended June 30, 1998 are not
necessarily indicative of the results which may be expected for the year ending
December 31, 1998 or any other period.
See Notes 2 and 3.
NOTE 2 - EARNINGS PER SHARE
In February 1997, the FASB issued Statement No. 128, Earnings Per Share (SFAS
128). SFAS 128 replaced the calculation of primary and fully diluted earnings
per share (EPS) with basic and diluted EPS. Unlike primary EPS, basic EPS
excludes any dilutive effects of options, warrants, and convertible securities.
Diluted EPS is very similar to fully diluted EPS. All EPS amounts presented have
been restated, as applicable, to conform with the new requirements.
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NOTE 3 - INVESTMENTS
Effective January 1, 1994, the Company adopted SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities. In accordance with SFAS No.
115, the Company classified its investment securities and mortgage-backed
securities as either "held-to-maturity," "available-for-sale," or "trading."
Management has determined that all applicable securities are either
"held-to-maturity" or "available-for-sale."
Investment and mortgage-backed securities designated as held-to-maturity are
stated at cost adjusted for amortization of the related premiums and accretion
of discounts, computed using the level yield method. The Company has the
positive intent and ability to hold these securities to maturity.
Investment and mortgage-backed securities designated as available-for-sale are
stated at estimated market value. Unrealized gains and losses are aggregated and
reported as a separate component of equity capital, net of deferred taxes. These
securities are acquired with the intent to hold them to maturity, but they are
available for disposal in the event of unforeseen liquidity needs.
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PART I - FINANCIAL INFORMATION
Item 2 - Management's Discussion and Analysis or Plan of Operation
GENERAL
Tri-County Bancorp, Inc. (the "Company") was incorporated on June 15, 1993, and
is the holding company of Tri-County Federal Savings Bank (the "Bank"). On
September 28, 1993, the Bank completed its conversion from a mutual savings and
loan association to a stock form of ownership at which time the Company issued
747,500 shares of Common Stock and utilized a portion of the proceeds to acquire
all of the issued shares of the Bank.
The Company is headquartered in Torrington, Wyoming and its principal business
currently consists of the operation of its wholly owned subsidiary, Tri-County
Federal Savings Bank. The Bank's primary business is attracting retail deposits
from the general public and investing those deposits and other borrowed funds in
various loan products, including mortgage-backed and mortgage-related
securities, federal agency securities and other investment securities.
The Company's results of operations are dependent primarily on its net interest
income, which is the difference between the interest earned on its assets,
primarily its loans and securities portfolios, and its cost of funds, which
consists of the interest paid on its deposits and borrowings. The Company's net
income also is affected by its provision for loan losses as well as non-interest
income, compensation and benefits, occupancy expenses, federal deposit insurance
premiums, other non-interest expenses, and income tax expense. Other
non-interest expenses consist of real estate lending operations, legal expenses,
accounting services and other miscellaneous costs. The earnings of the Company
are significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities.
CHANGES IN FINANCIAL CONDITION
ASSETS
The total assets of the Bank decreased by $3,411,104 or 3.79% during the first
six months of 1998.
Interest earning deposits increased by $3,173,826 during the period. The Bank
owned $4,000,000 of agency securities that were redeemed in June and the
proceeds had not been fully invested by the end of the period.
Securities available-for-sale decreased by $4,291,551 during the first half of
1998. Agency securities totaling $9,000,000 matured or were redeemed by the
issuing agency and principal payments and prepayments of $2,845,194 were
received from mortgage-backed securities during the period. These decreases were
partially offset by purchases totaling $7,398,590 and an increase in the market
value of the portfolio of $120,595.
Securities held-to-maturity decreased by $1,161,593. The decrease was the result
of principal payments and prepayments of $1,235,699 on the Bank's portfolio of
mortgage-backed securities which more than offset the purchase of a tax-exempt
bond in the amount of $75,000.
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Loans receivable decreased $214,694 during the first half of 1998. During this
period the Bank originated or purchased portfolio residential mortgage loans
totaling $5,118,732, non-residential mortgage loans totaling $347,200, consumer
loans totaling $768,098, and commercial loans in the amount of $131,500. During
the same period, the Bank received scheduled payments and prepayments totaling
$7,351,990 on its loan portfolio. Of the total mortgage loans originated or
purchased during the first six months of the year, $2,642,150 were adjustable
rate and $2,823,782 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 62% of mortgage lending during the period. The majority of purchased
loans are residential and non-residential real estate loans in Colorado and
Idaho mountain resort communities and non-residential real estate loans in
western New Mexico. Purchased loans are subjected to the same underwriting
standards and loan terms as those originated by the Bank for its portfolio.
LIABILITIES
Overall, deposit balances increased by $189,042 or 0.42%. There were increases
of $260,612 and $1,002,276 in demand accounts and savings and NOW deposits,
respectively, and a decrease of $1,073,846 in time deposits. The decrease in
time deposits was due, in part, to the scheduled maturity of deposits held by a
local school district which were originally issued in the previous year.
Advances from FHLB decreased by $4,073,749 during the six-month period ended
June 30, 1998. The change was caused by a decrease in the amount of advances
obtained or renewed to purchase or carry securities classified as
available-for-sale.
Deferred income taxes increased by $18,002 during the first six months of 1998
and was mainly the result of the application of SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities, which requires unrealized
gains and losses on available-for-sale securities to be reported, net of
deferred income taxes, as a separate component of stockholders' equity. The
market value of these securities increased $120,595 during the period, which
resulted in an increase in deferred income taxes.
STOCKHOLDERS' EQUITY
The increase in additional paid-in capital of $51,676 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
$458,956 which more than offset the decrease in retained earnings caused by the
payments of dividends of $0.21 per share totaling $245,175.
As discussed earlier, SFAS No. 115 requires unrealized gains and losses on
securities classified available-for-sale to be shown as a separate component of
stockholders' equity in an amount which is net of deferred income taxes. The
market value of securities classified as available-for-sale increased during the
first six months of 1998, which resulted in an increase, net of deferred income
tax, of $79,593 in stockholder's equity.
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COMPARISON OF THE OPERATING RESULTS
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
NET INCOME
Net income decreased $15,907 during the second quarter of 1998 when compared to
the same period of 1997. Net interest income decreased by $6,224, non-interest
income increased by $6,838 and non-interest expense increased by $13,321. The
provision for income taxes increased by $3,200.
INTEREST INCOME
Interest income from loans increased $124,154 or 16.56% for the quarter ended
June 30, 1998. The increase was the result of an increase in the average balance
of loans outstanding of $4,911,369 and an increase in yield on the loans from
8.27% to 8.49%.
The decrease of $118,318 in interest on securities available-for-sale was the
result of an decrease in the average balance of securities of $6,019,741 and a
decrease in the average yield on the portfolio from 6.51% to 6.27%. The decrease
in yield was the result of the purchase of securities, which, on average, had a
lower yield than the yield on the existing portfolio.
Interest on securities held-to-maturity decreased $54,285 and was caused
primarily by a decrease in the average balance of the portfolio of $2,018,852
and a decrease in the yield on the portfolio from 7.73% to 7.45%. The decrease
in yield was the result of the higher level of principal prepayments on the
higher yielding mortgage-backed securities in the portfolio.
The increase in income from other interest-earning assets of $20,741 was
primarily caused by an increase in the average balance of these assets. This
category of assets consists primarily of interest-earning demand and time
deposits held at FHLB.
INTEREST EXPENSE
Interest expense on deposits decreased $30,612 during the second quarter of
1998. This decrease was the result of a decrease of $1,984,321 in the average
balance of deposits and a decrease in the average cost of deposits from 4.64% to
4.58%.
The Bank took advantage of a relatively inexpensive source of funding available
through the FHLB to purchase financial instruments that yield a slightly higher
return than the rate charged on the advances. The average balance of these
borrowings was $464,123 less during the second quarter of 1998 than during the
second quarter of 1997 but the average cost of the borrowings increased from
5.71% to 5.95% which resulted in an increase of $9,128 in interest expense.
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PROVISION FOR LOAN LOSSES
No provision for loan losses was made during the second quarter of 1998. The
allowance for loan losses is based on Management's evaluation of the risk
inherent in its loan portfolio after giving due consideration to the changes in
general market conditions and in the nature and volume of the Bank's loan
activity. The Bank intends to continue to provide for loan losses based on its
periodic review of the loan portfolio and general market conditions. The
allowance for loan losses amounted to $413,000 at June 30, 1998. While the Bank
maintains its allowance for loan losses at a level which it considers adequate
to provide for potential losses, there can be no assurances that further
additions will not be made to the loss allowance and that such losses will not
exceed the estimated amounts.
NON-INTEREST INCOME
Non-interest income increased $6,838 during the second quarter of 1998. The
increase in the gain on sale of loans of $12,632 was the result of an increase
in the dollar amount of loans sold. Other non-interest income decreased $5,024
and was primarily the result of the recovery in the previous year of foreclosure
costs incurred in a prior period.
NON-INTEREST EXPENSE
Overall, non-interest expense increased $13,321 during the second quarter of
1998.
Compensation and benefits increased by $13,483 in 1998 and was primarily caused
by an increase in overall salaries and pension costs.
Occupancy and equipment expense decreased $5,838 and was primarily caused by
decreases in data processing costs and building repairs.
Other, net expenses increased by $6,609 and was the result of increases in
advertising, accounting and charitable contributions.
INCOME TAXES
The provision for income taxes increased $3,200 for the quarter ended June 30,
1998 when compared to the same period of the previous year. This decrease was
due to the correction in the second quarter of 1997 of an over accrual in the
first quarter of that year.
COMPARISON OF THE OPERATING RESULTS FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND 1997
NET INCOME
Net income decreased $13,053 during the first half of 1998 when compared to the
same period of 1997. Net interest income increased by $10,793, non-interest
income increased by $4,642 and non-interest expense increased by $39,540. The
provision for income taxes decreased by $11,052.
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INTEREST INCOME
Interest income from loans increased $243,310 or 16.35% for the six months ended
June 30, 1998. The increase was the result of an increase in the average balance
of loans outstanding of $5,301,369 and an increase in yield on the loans from
8.29% to 8.40%.
The decrease of $134,002 in interest on securities available-for-sale was the
result of an decrease in the average balance of securities of $3,692,741 and a
decrease in the average yield on the portfolio from 6.41% to 6.33%. The decrease
in yield was the result of the replacement of maturing securities with lower
yielding securities.
Interest on securities held-to-maturity decreased $100,516 and was caused
primarily by a decrease in the average balance of the portfolio of $2,168,963
and a decrease in the yield on the portfolio from 7.88% to 7.46%. The decrease
in yield was the result of the higher level of principal prepayments on the
higher yielding mortgage-backed securities in the portfolio.
The increase in income from other interest-earning assets of $25,748 was
primarily caused by an increase in the average balance of these assets. This
category of assets consists primarily of interest earning demand and time
deposits held at FHLB.
INTEREST EXPENSE
Interest expense on deposits decreased $66,747 during the first half of 1998.
This decrease was the result of a decrease of $2,698,321 in the average balance
of deposits and a slight decrease in the average cost of deposits from 4.58% to
4.56%.
The Bank took advantage of a relatively inexpensive source of funding available
through the FHLB to purchase financial instruments that yield a slightly higher
return than the rate charged on the advances. The average balance of these
borrowings was $2,186,741 greater during the first half of 1998 than during the
first half of 1997 and the average cost of the borrowings increased from 5.58%
to 5.79% which resulted in an increase of $90,494 in interest expense.
PROVISION FOR LOAN LOSSES
No provision for loan losses was made during the first half of 1998. The
allowance for loan losses is based on Management's evaluation of the risk
inherent in its loan portfolio after giving due consideration to the changes in
general market conditions and in the nature and volume of the Bank's loan
activity. The Bank intends to continue to provide for loan losses based on its
periodic review of the loan portfolio and general market conditions. The
allowance for loan losses amounted to $413,000 at June 30, 1998. While the Bank
maintains its allowance for loan losses at a level which it considers adequate
to provide for potential losses, there can be no assurances that further
additions will not be made to the loss allowance and that such losses will not
exceed the estimated amounts.
NON-INTEREST INCOME
Non-interest income increased $4,642 during the first half of 1998. The increase
in the gain on sale of loans of $9,341 was the result of an increase in the
dollar amount of loans sold. Other non-interest income decreased $5,010 and was
primarily the result of the recovery in the previous year of foreclosure costs
incurred in a prior period.
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NON-INTEREST EXPENSE
Overall, non-interest expense increased $39,540 during the first half of 1998.
Compensation and benefits increased by $33,346 in 1998 and was primarily caused
by an increase in overall salaries and pension costs.
Other, net expenses increased by $8,212 and was the result of increases in
advertising, accounting, charitable contributions and employee education costs.
INCOME TAXES
The provision for income taxes decreased $11,052 for the six months ended June
30, 1998 when compared to the same period of the previous year. This decrease
was mainly caused by a decrease in net income before taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Bank is required to maintain minimum levels of liquid assets as defined by
the Office of Thrift Supervision regulations. This requirement, which may vary
from time to time, depends upon, among other things, economic conditions and the
amount of cash flows needed for operations and is based upon a percentage of
deposits and short-term borrowings. The required ratio currently is 4%. The
Bank's liquidity averaged 61.13% during the second quarter of 1998. The Bank
adjusts its liquidity levels in order to meet funding needs for deposit
outflows, payment of real estate taxes from escrow accounts on mortgage loans,
repayment of borrowings, when applicable, and loan funding commitments. The Bank
also adjusts its liquidity level as appropriate to meet its asset/liability
objectives.
The Bank's primary sources of funds are deposits, amortization and prepayments
of loans and mortgage-backed securities, FHLB advances, sales and maturities of
investments and funds provided from operations. While scheduled loan
amortization and maturing investment securities are a relatively predictable
source of funds, deposit flow and loan prepayments are greatly influenced by
market interest rates, economic conditions and competition. The Bank manages the
pricing of its deposits to maintain a steady deposit balance. In addition, the
Bank invests its excess funds in short-term time deposits that provide liquidity
to meet lending requirements. Interest-bearing deposits at June 30, 1998
amounted to $5,054,233. The Bank's liquidity, represented by cash and cash
equivalents, is a product of its operating, investing and financing activities.
These activities are summarized as follows:
6 Months Ended June 30,
(in thousands)
---------------------
1998 1997
Cash and cash equivalents at beginning of year..... $ 2,639 $ 2,289
------- -------
OPERATING ACTIVITIES:
Net Income........................................ 459 472
Adjustments to reconcile net income to net
cash provided by operation activities............ 721 10
------- -------
Net cash provided by operating activities......... 1,180 482
Net cash provided (used) by investing activities.. 5,808 (4,112)
Net cash provided (used) by financing activities.. (4,087) 2,787
------- -------
Net increase (decrease) in cash and cash
equivalents...................................... 2,901 (843)
------- -------
Cash and cash equivalents at end of period....... $ 5,540 $ 1,446
======= =======
-14-
<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 June 30, 1998, the Bank had outstanding commitments of
$1,711,468. Certificates of deposit scheduled to mature in one year or less at
June 30, 1998 totaled $22,607,997. Based on past experience, Management believes
that a substantial portion of such deposits will remain with the Bank.
The following table sets forth the Bank's capital position at June 30, 1998, as
compared to the minimum regulatory requirements:
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Dollars Ratio Dollars Ratio Dollars Ratio
June 30, 1998
Total Equity Capital
(to risk-weighted assets) $13,304 39.2% $2,712 8.0% $3,390 10.0%
Tier 1 Capital
(to risk-weighted assets) $12,404 36.6% $1,356 4.0% $2,034 6.0%
Tier 1 Capital
(to adjusted total assets) $12,404 14.5% $3,412 4.0% $4,265 5.0%
</TABLE>
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements of the Company and notes thereto,
presented elsewhere herein, have been prepared in accordance with generally
accepted accounting principles ("GAAP"), which require the measurement of
financial position and operating results in terms of historical dollars without
considering the change in the relative purchasing power of money over time due
to inflation. The impact of inflation is reflected in the increased cost of the
Company's operations. Unlike most industrial companies, nearly all the assets
and liabilities of the Company are financial. As a result, interest rates have a
greater impact on the Company's performance than do the effects of general
levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the prices of goods and services.
-15-
<PAGE>
YEAR 2000 COMPLIANCE
Tri-County Federal Savings Bank relies upon computers for the daily conduct of
its business and for general data processing. Significant national attention has
been directed at possible problems that may occur with computer programs and
data processing systems when they start utilizing the year 2000 in data fields.
Accordingly, the Bank has adopted a Year 2000 plan (the Plan) to identify all
areas that may be affected by the change to the year 2000. The Plan includes
ensuring that external vendors and services are adequately addressing the system
and software issues related to the year 2000 by requiring written certifications
that the systems and software are fully Year 2000 compliant by December 31,
1998. The majority of the Bank's data is processed by a third party service
bureau. The service bureau has notified the Bank that it will be Year 2000
compliant by October 31, 1998. If the Bank's service bureau is unable to resolve
this potential problem in time, the Bank would likely experience significant
data processing delays, mistakes or failures. These delays, mistakes or failures
could have a significant adverse impact on the consolidated financial condition
and results of operations of Tri-County Federal Savings Bank.
-16-
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Neither the Company nor the Bank was engaged in any legal proceeding of a
material nature at June 30, 1998. From time to time, the Bank is a party to
legal proceedings in the ordinary course of business wherein it enforces
its security interest in loans.
Item 2. Changes in Securities
Not Applicable.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders of the Company was held on April 29,
1998. The following directors were elected to serve terms of three years
ending in 2001: William J. Rueb and Lance H. Griggs. William J. Rueb
received 978,618 votes with 5,110 votes withheld. Lance H. Griggs received
978,618 votes with 5,110 votes withheld.
Dalby, Wendland & Co., P.C. was ratified as the Company's independent
auditors for the fiscal year ending December 31, 1998 with 983,728 votes
for and no abstentions.
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11: Statement regarding computation of earnings per share.
Exhibit 27: FDS (in electronic filing only)
(b) Reports on Form 8-K
None
-17-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
Date: August 7, 1998 /s/ Robert L. Savage
------------------------------- President and Chief Executive Officer
Date: August 7, 1998 /s/ Tommy A. Gardner
------------------------------- Vice President and Chief Financial Officer
-18-
EXHIBIT 11
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
EARNINGS PER SHARE
Net earnings available for common shares and
common stock equivalent shares deemed to have
a dilutive effect $227,196 $243,103 $458,988 $472,041
======== ======== ======== ========
Basic earnings per share $0.19 $0.20 $0.39 $0.39
===== ===== ===== =====
Diluted earnings per share $0.18 $0.19 $0.37 $0.36
===== ===== ===== =====
Shares used in basic earnings per share
computation. Weighted average common shares
outstanding 1,167,498 1,217,498 1,167,498 1,217,498
========= ========= ========= =========
Shares used in diluted earnings per share
computation. Weighted average common shares
outstanding 1,260,873 1,289,402 1,260,520 1,286,347
Additional potentially dilutive effect of
stock options 93,375 71,904 93,022 68,849
---------- ---------- ---------- ----------
$1,167,498 $1,217,498 $1,167,498 $1,217,498
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 485,471
<INT-BEARING-DEPOSITS> 5,054,233
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 32,234,461
<INVESTMENTS-CARRYING> 6,825,657
<INVESTMENTS-MARKET> 7,005,664
<LOANS> 40,210,594
<ALLOWANCE> 412,657
<TOTAL-ASSETS> 86,549,421
<DEPOSITS> 45,594,270
<SHORT-TERM> 12,483,000
<LIABILITIES-OTHER> 26,723,535
<LONG-TERM> 13,139,867
0
0
<COMMON> 149,500
<OTHER-SE> 14,082,116
<TOTAL-LIABILITIES-AND-EQUITY> 86,549,421
<INTEREST-LOAN> 1,731,371
<INTEREST-INVEST> 1,379,764
<INTEREST-OTHER> 46,634
<INTEREST-TOTAL> 3,157,769
<INTEREST-DEPOSIT> 1,026,471
<INTEREST-EXPENSE> 1,814,891
<INTEREST-INCOME-NET> 1,342,878
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 94,480
<INCOME-PRETAX> 653,588
<INCOME-PRE-EXTRAORDINARY> 458,988
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 458,988
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.37
<YIELD-ACTUAL> 3.14
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 109,474
<ALLOWANCE-OPEN> 412,584
<CHARGE-OFFS> 0
<RECOVERIES> 67
<ALLOWANCE-CLOSE> 412,651
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 412,651
</TABLE>
