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 September 30, 1999
-------------------------------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission file number 0-22220
TRI-COUNTY BANCORP, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
WYOMING 83-0304855
- -------------------------------------------------------------------- -----------
(State or Other Jurisdiction of Incorporation (I.R.S.Employer
or Organization) 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
---------------------------------
N/A (Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
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 November 12, 1999.
Class Outstanding
- --------------------------------------------------------------------------------
$.10 par value common stock 898,493 shares
Transitional Small Business Disclosure Format (check one):
Yes No X
<PAGE>
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Financial
Condition as of September 30, 1999 (unaudited)
and December 31, 1998................................3
Condensed Consolidated Statements of Operations
for the Three Months and Nine Months Ended
September 30, 1999 and 1998 (unaudited)..............4
Condensed Consolidated Statements of Stockholder's
Equity for the Nine Months Ended September 30, 1999
and 1998 (unaudited).................................5
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1999
and 1998 (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...................................18
Item 2. Changes in Securities...............................18
Item 3. Default Upon Senior Securities......................18
Item 4. Submissions of Matters to a Vote of Security
Holders.............................................18
Item 5. Other Information...................................18
Item 6. Exhibits and Reports on Form 8-K....................18
SIGNATURES...................................................19
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
(unaudited)
------------- -------------
ASSETS
<S> <C> <C>
Cash and due from banks $1,242,346 $385,804
Interest-bearing deposits with banks 410,210 2,979,241
Securities available for sale, at fair value 28,727,466 28,071,431
Securities held to maturity, market value of
$7,272,323 (1999) and $5,474,222 (1998) 7,163,968 5,335,700
Loans held for sale, at market value 355,087 435,721
Loans receivable, net of allowance for loan losses
of $399,462 (1999) and $409,984 (1998) 47,198,645 42,054,222
Accrued interest receivable 652,389 450,017
Bank property and equipment 1,707,416 801,141
Other assets 57,657 138,685
------ -------
Total Assets $86,859,149 $81,307,997
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits 686,043 690,177
Savings and NOW deposits 16,757,266 14,513,645
Time deposits 30,347,821 30,770,264
---------- ----------
Total Deposits 47,791,130 45,974,086
Advance from Federal Home Loan Bank 27,963,492 23,799,117
Accounts payable and accrued expenses 242,955 216,841
Advances by borrowers for taxes and insurance 154,556 110,167
Deferred income taxes 494,877 787,119
------- -------
Total Liabilities 76,647,010 70,887,330
---------- ----------
Stockholders' Equity
Preferred stock, $.10 par value, 5,000,000 shares
authorized, none issued -- --
Common stock, 10,000,000 share of $.10 par value
authorized, 1,533,395 (1999) and
1,520,425 (1998) shares issued 153,340 152,043
Additional paid in capital 7,443,164 7,319,578
Retained earnings - substantially restricted 9,521,051 9,260,742
Unearned compensation relating to Management
Stock Bonus Plan and ESOP (239,200) (284,050)
Unrealized gain/(loss) on securities available
for sale, net of tax 481,174 1,106,701
Treasury stock, 642,377 (1999) and 641,627 (1998)
shares, at cost (7,147,390) (7,134,347)
---------- ----------
Total Stockholders' Equity 10,212,139 10,420,667
---------- ----------
Total Liabilities and Stockholders' Equity $86,859,149 $81,307,997
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
-3-
<PAGE>
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
-------- -------- --------- ----------
<S> <C> <C> <C> <C>
Interest Income
Loans $933,777 $852,942 $2,700,684 $2,584,312
Securities available for sale 450,443 511,056 1,333,059 1,614,687
Securities held to maturity 106,157 121,218 279,708 397,351
Other interest earning assets 6,674 14,009 55,024 60,642
----- ------ ------ ------
Total Interest Income 1,497,051 1,499,225 4,368,475 4,656,992
--------- --------- --------- ---------
Interest Expense
Deposits 507,461 513,361 1,493,926 1,539,832
Advances and other borrowings 363,465 348,029 1,017,048 1,136,449
------- ------- --------- ---------
Total Interest Expense 870,926 861,390 2,510,974 2,676,281
------- ------- --------- ---------
Net Interest Income 626,125 637,835 1,857,501 1,980,711
Provision for credit losses -- -- -- --
------- ------- --------- ---------
Net Interest Income After
Provision for Credit Losses 626,125 637,835 1,857,501 1,980,711
------- ------- --------- ---------
Non-interest Income
Gain on sale of loans 9,060 17,784 35,468 43,528
Gain(loss) on sale of available for
sale securities -- 35,402 3,696 35,402
Service charges on deposits 35,560 30,643 97,147 88,442
Other, net 9,557 8,531 22,305 19,468
----- ----- ------ ------
Total Non-interest Income 54,177 92,360 158,616 186,840
------ ------ ------- -------
Non-interest Expense
Compensation and benefits 256,482 220,884 680,057 668,623
Occupancy and equipment 80,080 80,517 245,761 241,179
Federal deposit insurance premium 6,718 6,843 20,183 21,343
Other, net 85,866 75,134 242,490 236,002
------ ------ ------- -------
Total Non-interest Expense 429,146 383,378 1,188,491 1,167,147
------- ------- --------- ---------
Earnings Before Income Taxes 251,156 346,817 827,626 1,000,404
Income taxes 81,940 100,700 275,640 295,300
------ ------- ------- -------
Net Earnings(Loss) $169,216 $246,117 $551,986 $705,104
======== ======== ======== ========
Earnings(Loss) Per Common Share - Diluted $0.18 $0.20 $0.59 $0.56
===== ===== ===== =====
Cash Dividend Paid Per Common Share $0.11 $0.11 $0.33 $0.32
===== ===== ===== =====
</TABLE>
See notes to condensed consolidated financial statements.
-4-
<PAGE>
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Nine Months Ended September 30, 1998 and 1999
(unaudited)
<TABLE>
<CAPTION>
Employee Accumulated
Additional Stock MSBP Other
Common Paid-In Retained Ownership Unearned Comprehensive Treasury
Stock Capital Earnings Plan Compensation Income Stock Total
----------------------------------------------------------------------------------------------
<C> <S> <S> <S> <S> <S> <S> <S> <S>
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 -- -- 705,104 -- -- -- -- 705,104
Other comprehensive income:
Unrealized market adjustments,
net of tax and
reclassification adjustment -- -- -- -- -- 79,593 -- 79,593
----------------------------------------------------------------------------------------------
Comprehensive income -- -- 705,104 -- -- 79,593 -- 784,697
----------------------------------------------------------------------------------------------
Repayment of ESOP debt -- -- -- 29,900 -- -- -- 29,900
Allocation of ESOP shares -- 72,394 -- -- -- -- -- 72,394
Amortization of deferred compensation -- -- -- -- 29,450 -- -- 29,450
Dividends paid - cash -- -- (245,175) -- -- -- -- (245,175)
Stock options exercised -- -- -- -- -- -- -- --
Treasury stock purchased -- -- -- -- -- -- -- --
----------------------------------------------------------------------------------------------
Balance - September 30,1998 $149,500 $7,172,994 $9,252,876 ($313,950) ($14,725) $897,069 ($2,645,314) $14,498,450
======== ========== =========== ========== ========= ======== ============ ============
Balance - December 31, 1998 $152,043 $7,319,578 $9,260,742 ($284,050) -- $1,106,701 ($7,134,347) $10,420,667
Net earnings -- -- 551,986 -- -- -- -- 551,986
Other comprehensive income:
Unrealized market adjustments,
net of tax and
reclassification adjustment -- -- -- -- -- (625,527) -- (625,527)
----------------------------------------------------------------------------------------------
Comprehensive income -- -- 551,986 -- -- (625,527) -- (73,541)
----------------------------------------------------------------------------------------------
Repayment of ESOP debt -- -- -- 44,850 -- -- -- 44,850
Allocation of ESOP shares -- 60,033 -- -- -- -- -- 60,033
Amortization of deferred compensation -- -- -- -- -- -- -- --
Dividends paid - cash -- -- (291,677) -- -- -- -- (291,677)
Stock options exercised 1,297 63,553 -- -- -- -- -- 64,850
Treasury stock purchased -- -- -- -- -- -- (13,043) (13,043)
----------------------------------------------------------------------------------------------
Balance - September 30,1999 $153,340 $7,443,164 $9,521,051 ($239,200) -- $481,174 ($7,147,390) $10,212,139
======== ========== ========== ========= ======== ======== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
-5-
<PAGE>
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
----------- -----------
<C> <S> <S>
Net Cash Provided by Operations $439,607 $1,558,340
Investing Activities
Principal payments received on held to maturity securities 1,167,112 1,917,388
Purchase of held to maturity securities (2,998,975) (177,000)
Purchase of available for sale securities (9,499,419) (10,398,590)
Sale of available for sale securities 3,433,328 977,799
Principal payments received on available for sale securities 5,845,007 14,492,797
Net decrease (increase) in loans (642,301) 2,273,745
Purchase of loans (4,297,923) (5,276,452)
Proceeds from sale of real estate owned -- --
Investment in property and equipment and real estate owned (989,712) (23,472)
-------- -------
Net Cash Provided (Used) by Investing Activities $(7,982,883) $3,786,215
=========== ==========
Financing Activities
Net increase (decrease) in deposits 1,817,045 (652,179)
Net increase (decrease) in advances from borrowers for taxes and insurance 44,388 50,350
FHLB borrowings 10,200,000 15,700,000
Repayment of FHLB advance (6,035,625) (19,085,623)
Payments received from ESOP 44,850 44,850
Exercise of stock options 64,850 --
Treasury stock purchased (13,043) --
Cash dividends paid (291,678) (373,600)
-------- --------
Net Cash Provided (Used) by Financing Activities 5,830,787 (4,316,202)
--------- ---------
Increase (Decrease) in Cash and Cash Equivalents (1,712,489) 1,028,353
Cash and cash equivalents - beginning of period 3,365,044 2,638,807
--------- ---------
Cash and cash equivalents - end of period $1,652,555 $3,667,160
========== ==========
Supplemental Disclosures
Cash paid for:
Interest $2,507,359 $2,762,789
========== ==========
Income taxes $255,400 $320,600
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
-6-
<PAGE>
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(unaudited)
NOTE 1 - BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements include the accounts
of Tri-County Bancorp, Inc. (the "Company"), Tri-County Federal Savings Bank
(formerly Tri-County Federal Savings and Loan Association) (the "Bank") and
First Tri-County Services, Inc. All significant intercompany balances and
transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements were
prepared in accordance with generally accepted accounting principles for interim
financial information and with instructions for Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all information and disclosures
required by generally accepted accounting principles for complete financial
statements. The accompanying consolidated financial statements do not purport to
contain all the necessary financial disclosures required by generally accepted
accounting principles that might otherwise be necessary in the circumstances and
should be read together with the 1998 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, 1998.
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 nine-month period ended September 30, 1999 are
not necessarily indicative of the results which may be expected for the year
ending December 31, 1999 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.
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."
-7-
<PAGE>
Investment and mortgage-backed securities designated as held to maturity are
stated at cost adjusted for amortization of the related premiums and accretion
of discounts, computed using the level yield method. The Company has the
positive intent and ability to hold these securities to maturity.
Investment and mortgage-backed securities designated as available for sale are
stated at estimated market value. Unrealized gains and losses are aggregated and
reported as a separate component of equity capital, net of deferred taxes. These
securities are acquired with the intent to hold them to maturity, but they are
available for disposal in the event of unforeseen liquidity needs.
NOTE 4 - COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income. SFAS No. 130 requires that an enterprise (a) classify
items of other comprehensive income by their nature in a financial statement and
(b) display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section of a
statement of financial condition. The Company's only item of other comprehensive
income is the unrealized gain (loss) on securities available for sale, which is
reported net of tax effect. The following schedule reflects the unrealized
holding gains arising during the periods ended September 30, 1999 and 1998.
<TABLE>
<CAPTION>
Before-Tax Tax Benefit Net-of-Tax
Amount or (Expense) Amount
--------------------------------------
<C> <S> <S> <S>
For the Nine Months ended September 30, 1998
Accumulated Other Comprehensive Income - Dec. 31, 1997 $1,238,601 ($421,125) $817,476
Unrealized hold gains (losses) arising during the period 120,594 (41,001) 79,593
Gain(Loss) reclassification adjustment for gains (losses)
realized in net earnings 0 0 0
---------- --------- --------
Accumulated Other Comprehensive Income - Sept. 30, 1998 $1,359,195 ($462,126) $897,069
========== ========= ========
For the Nine Months ended September 30, 1999
Accumulated Other Comprehensive Income - Dec. 31, 1998 $1,676,820 ($570,119) 1,106,701
Unrealized hold gains (losses) arising during the period (951,467) 323,499 (627,968)
Gain(Loss) reclassification adjustment for gains (losses)
realized in net earnings 3,696 (1,257) 2,439
----- ------ -----
Accumulated Other Comprehensive Income - Sept. 30, 1999 $729,049 ($247,877) $481,172
======== ======= ========
</TABLE>
-8-
<PAGE>
PART I - FINANCIAL INFORMATION
Item 2 - Management's Discussion and Analysis or Plan of Operation
GENERAL
Tri-County Bancorp, Inc. (the "Company") was incorporated on June 15, 1993, and
is the holding company of Tri-County Federal Savings Bank (the "Bank"). On
September 28, 1993, the Bank completed its conversion from a mutual savings and
loan association to a stock form of ownership at which time the Company issued
747,500 shares of Common Stock and utilized a portion of the proceeds to acquire
all of the issued shares of the Bank.
The Company is headquartered in Torrington, Wyoming and its principal business
currently consists of the operation of its wholly owned subsidiary, Tri-County
Federal Savings Bank. The Bank's primary business is attracting retail deposits
from the general public and investing those deposits and other borrowed funds in
various loan products, including mortgage-backed and mortgage-related
securities, federal agency securities and other investment securities.
The Company's results of operations are dependent primarily on its net interest
income, which is the difference between the interest earned on its assets,
primarily its loans and securities portfolios, and its cost of funds, which
consists of the interest paid on its deposits and borrowings. The Company's net
income also is affected by its provision for loan losses as well as non-interest
income, compensation and benefits, occupancy expenses, Federal deposit insurance
premiums, other non-interest expenses, and income tax expense. Other
non-interest expenses consist of 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.
The Private Securities Litigation Reform Act of 1995 contains safe harbor
provisions regarding forward-looking statements. When used in this discussion,
the word "believes," "anticipates," "contemplates," "expects," and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties which could cause actual results
to differ materially from those projected. Those risks and uncertainties include
changes in interest rates, risks associated with the effect of opening a new
branch, the ability to control costs and expenses, legislative and regulatory
actions and general economic conditions. The Company undertakes no obligation to
publicly release the results of any revisions to those forward-looking
statements which may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
CHANGES IN FINANCIAL CONDITION
ASSETS
Total assets of the Bank increased by $5.55 million or 6.83% during the first
nine months of 1999. The increase was primarily the result of increases in loans
receivable, securities held to maturity and bank property and equipment which
more than offset decreases in cash and securities available for sale.
Interest earning deposits decreased $2.57 million during the period. The
decrease was primarily the result of the funding of loans.
<PAGE> -9-
Securities available for sale decreased by $0.66 million during the first nine
months of 1999. Securities totaling $3.44 million were sold, principal payments
and prepayments of $4.85 million were received on mortgage-backed securities, a
$1.00 million agency security was called by the issuer and the market value of
the securities decreased $0.95 million during the period. These decreases were
partially offset by purchases of agency securities totaling $9.50 million.
Securities held to maturity increased by $1.83 million. The increase was the
result of the purchase of agency and mortgage-backed securities totaling $3.00
million, which more than offset principal payments and prepayments of $1.17
million on the Bank's portfolio of mortgage-backed securities.
Loans receivable increased $5.14 million during the first nine months of 1999.
During this period, the Bank originated or purchased portfolio residential
mortgage loans totaling $7.95 million, non-residential mortgage loans totaling
$2.56 million, consumer loans totaling $2.19 million, and commercial loans
totaling $1.30 million. During the same period, the Bank received scheduled
principal payments and prepayments totaling $9.04 million on its loan portfolio.
Of the total mortgage loans originated or purchased during the year, $5.16
million were adjustable rate and $9.02 million 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 41% 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 along the front range of Colorado. Purchased loans are subjected to the
same underwriting standards and loan terms as those originated by the Bank for
its portfolio.
Bank property and equipment increased by $0.91 million and was primarily the
result of the purchase of land and the continuing construction of a new branch
bank to be located in Cheyenne, Wyoming. The parcel of land consists of 4.5
acres of which 1 acre will be used as the site for the new branch and the
remaining 3.5 acres held for future development jointly by the Bank and an
undetermined third party. The total cost of the facility is estimated to be $1.4
million and the projected opening date is in the first quarter of 2000. The cost
of the facility will be capitalized in 1999 and 2000.
LIABILITIES
Deposit balances increased by $1.82 million or 3.95% from $45.97 million at
December 31, 1998 to $47.79 million at September 30, 1999. The net increase
consisted of a decrease of $0.42 million in time deposits and an increase of
$2.24 million in savings and NOW deposits.
Advances from the Federal Home Loan Bank increased $4.16 million during the
first nine months of 1999. The advances are a supplement to the Bank's retail
deposits and were used to fund loan originations and to purchase loans and
investment securities.
Deferred income taxes decreased by $0.29 million during the first nine months of
the year 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 decreased $0.95 million during the period,
which resulted in a decrease in deferred income taxes.
STOCKHOLDERS' EQUITY
Overall, stockholders' equity decreased $0.21 million during the first nine
months of 1999.
-10-
<PAGE>
The increase in additional paid-in capital of $0.12 million was caused, in part,
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 which resulted in an
increase of $60,000. Also, directors and officers of the Bank exercised stock
options on 12,970 shares, which increased additional paid-in capital by $64,000.
The increase in retained earnings was the result of net earnings totaling $0.55
million which more than offset the decrease in retained earnings caused by the
payments of dividends of $0.33 per share totaling $0.29 million.
As discussed earlier, SFAS No. 115 requires unrealized gains and losses on
securities classified available for sale to be shown as a separate component of
stockholders' equity in an amount which is net of deferred income taxes. The
market value of securities classified as available for sale decreased during the
first nine months of 1999 and resulted in a decrease, net of deferred income
tax, of $0.63 million in stockholder's equity.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
1999 AND SEPTEMBER 30, 1998
NET INCOME
Net income decreased $77,000 during the quarter ended September 30, 1999 when
compared to the same period of 1998. Net interest income decreased by $12,000,
non-interest income decreased by $38,000 and non-interest expense increased by
$46,000. The provision for income taxes decreased by $19,000.
During the third quarter of 1998, the Bank's Board of Directors approved an
Offer to its shareholders to tender as many as 313,000 shares which would be
acquired by the Bank. The Offer was designed to allow the Bank to reposition its
balance sheet to increase return on equity and earnings per share by redeploying
a portion of the Bank's equity capital. In December of 1998, the Bank
repurchased the shares pursuant to the tender offer at a cost of $4.49 million.
A substantial portion of the funds used to reacquire the shares were obtained by
selling investment securities and the Bank has experienced a corresponding
decrease in investment income in the current year when compared to the prior
year.
INTEREST INCOME
Interest income from loans increased $81,000 or 9.48% for the quarter ended
September 30, 1999. The increase was the result of an increase in the average
balance of loans outstanding of $5.20 million which more than offset a decrease
in yield on the loans from 8.13% to 7.93%.
The decrease of $61,000 in interest on securities available for sale was the
result of a decrease in the average balance of securities of $3.83 million and a
decrease in the average yield on the portfolio from 6.34% to 6.32%. The decrease
in yield was the result of the disproportionately greater principal payments and
prepayments on mortgage-backed securities with higher yields when compared to
the overall yield on the portfolio.
Interest on securities held to maturity decreased $15,000 and was caused
primarily by a decrease in the average balance of the portfolio of $110,000 and
a decrease in the yield on the portfolio from 7.62% to 6.74%. The decrease in
yield was primarily the result of the disproportionately greater principal
payments and prepayments on mortgage-backed securities with higher yields when
compared to the overall yield on the portfolio.
The decrease in income from other interest-earning assets of $7,000 was
primarily caused by a decrease in the average balance of these assets. This
category of assets consists primarily of interest-earning demand deposits held
at FHLB.
-11-
<PAGE>
INTEREST EXPENSE
Interest expense on deposits decreased $6,000 during the third quarter of 1999.
This decrease was the result of a decrease in the average cost of deposits from
4.60% to 4.33%, which offset an increase of $2.24 million in the average balance
of deposits.
The Bank took advantage of a relatively inexpensive source of funding available
through the FHLB to supplement retail deposits and to purchase financial
instruments that yield a slightly higher return than the rate charged on the
advances. The average balance of these borrowings was $2.12 million greater
during the third quarter of 1999 than during the same period of 1998 which more
than offset a decrease in the average cost of the borrowings from 5.70% to 5.47%
and resulted in an increase of $15,000 in interest expense.
PROVISION FOR LOAN LOSSES
No provision for loan losses was made during the third quarter of 1999. 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 $399,000 at September 30, 1999. 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
Overall, the total of non-interest income decreased by $38,000 in the third
quarter of 1999 when compared to the same period of 1998.
The decrease in the gain on the sale of loans of $9,000 was the result of a
decrease in the dollar amount of loans sold.
The decrease in the gain on the sale of available for sale securities of $35,000
was the result of no security sales in the current period.
Service charges on deposits increased $5,000 mainly because of an increase in
chargeable events.
NON-INTEREST EXPENSE
Overall, non-interest expense increased $46,000 during the quarter ended
September 30, 1999.
Compensation and benefits increased by $36,000 in the third quarter of 1999 when
compared to 1998, and was primarily caused by the hiring of additional
management and staff to allow the Bank to originate commercial and agricultural
loans to be held in the Bank's portfolio of loans.
Other expenses increased by $11,000 when compared to the same period of the
previous year. The increase in expenses was mainly caused by increased marketing
expenses regarding the introduction and development of new and existing loan and
deposit products and to inform the Bank's customers of its efforts to become
fully Year 2000 compliant.
The Bank has undertaken a project to open a third office in Cheyenne, Wyoming.
The additional office is expected to enhance the long-term growth of the
Company. While the impact of this project has not been significant so far, it is
expected that it will increase overhead expenses significantly next year. As
with any start-up operation, this office cannot be expected to produce a profit
until a deposit base sufficient to support the operation can be generated.
-12-
<PAGE>
INCOME TAXES
Earnings before taxes decreased by $96,000 while the provision for income taxes
decreased $19,000 for the quarter ended September 30, 1999. The main reason for
the disproportionate decrease in income tax when compared to the decrease in
income before tax was due to the establishment, in the prior year, of a deferred
tax asset resulting from the difference between financial and tax accounting for
losses incurred from mortgage loan foreclosure and disposition.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1999 AND SEPTEMBER 30, 1998
NET INCOME
Net income decreased $153,000 during the first nine months of 1999 when compared
to the same period of 1998. Net interest income decreased by $123,000,
non-interest income decreased by $28,000 and non-interest expense increased by
$21,000. The provision for income taxes decreased by $20,000.
During the third quarter of 1998, the Bank's Board of Directors approved an
Offer to its shareholders to tender as many as 313,000 shares which would be
acquired by the Bank. The Offer was designed to allow the Bank to reposition its
balance sheet to increase return on equity and earnings per share by redeploying
a portion of the Bank's equity capital. In December of 1998, the Bank
repurchased the shares pursuant to the tender offer at a cost of $4.49 million.
A substantial portion of the funds used to reacquire the shares were obtained by
selling investment securities and the Bank has experienced a corresponding
decrease in investment income in the current year when compared to the prior
year.
INTEREST INCOME
Interest income from loans increased $116,000 or 4.50% for the period ended
September 30, 1999. The increase was the result of an increase in the average
balance of loans outstanding of $3.54 million which more than offset a decrease
in yield on the loans from 8.31% to 8.01%.
The decrease of $282,000 in interest on securities available for sale was the
result of a decrease in the average balance of securities of $4.66 million and a
decrease in the average yield on the portfolio from 6.39% to 6.10%. The decrease
in yield was the result of the purchase of securities, which, on average, had a
lower yield than the yield on the portfolio before the purchase.
Interest on securities held to maturity decreased $118,000 and was caused
primarily by a decrease in the average balance of the portfolio of $1.83 million
and a decrease in the yield on the portfolio from 7.51% to 7.15%. The decrease
in yield was primarily the result of the disproportionately greater principal
payments and prepayments on mortgage-backed securities with higher yields when
compared to the overall yield on the portfolio.
The decrease in income from other interest-earning assets of $6,000 was
primarily caused by a decrease in the average balance of this asset which more
than offset an increase in the yield on this asset. This category of assets
consists primarily of interest-earning demand deposits held at FHLB.
-13-
<PAGE>
INTEREST EXPENSE
Interest expense on deposits decreased $46,000 during the first nine months of
1999. This decrease was the result of a decrease in the average cost of deposits
from 4.55% to 4.29%, which offset an increase of $1.37 million in the average
balance of deposits.
The Bank took advantage of a relatively inexpensive source of funding available
through the FHLB to supplement retail deposits and to purchase financial
instruments that yield a slightly higher return than the rate charged on the
advances. The average balance of these borrowings was $1.50 million less during
the first nine months of 1999 than during the same period of 1998 and the
average cost of the borrowings decreased from 5.76% to 5.47% which resulted in a
decrease of $119,000 in interest expense.
PROVISION FOR LOAN LOSSES
No provision for loan losses was made during the first nine months of 1999. 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 $399,000 at September 30, 1999. 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
Total non-interest income decreased by $28,000 during the first nine months of
1999 when compared to the same period of 1998.
The decrease in the gain on the sale of loans of $8,000 was the result of a
decrease in the dollar amount of loans sold.
The Bank sold available for sale securities in 1999 and recognized a gain of
$4,000 while securities sold in the previous year produced gains of $35,000.
Service charges on deposits increased $9,000 mainly because of an increase in
chargeable events.
NON-INTEREST EXPENSE
Overall, non-interest expense increased $21,000 during the period ended
September 30, 1999.
Compensation and benefits increased by $11,000 in 1999 and was primarily caused
by the hiring of additional management and staff to allow the Bank to originate
commercial and agricultural loans to be held in the Bank's portfolio of loans
and the accrual of expenses associated with an employee incentive plan. The
increase in staffing and the overall increases in compensation and benefits more
than offset the decrease in costs realized by the fulfillment, in the previous
year, of a management stock bonus plan. The stock was awarded over a five-year
period beginning in the fourth quarter of 1993 and concluded in the third
quarter of 1998.
Occupancy and equipment expense increased $5,000 and was primarily caused by
increases in utilities and building and equipment repairs and maintenance.
-14-
<PAGE>
Other expenses increased by $6,000 when compared to the same period of the
previous year. The increase in expenses was mainly caused by increased marketing
expenses regarding the introduction and development of new and existing loan and
deposit products and to inform the Bank's customers of its efforts to become
fully Year 2000 compliant.
The Bank has undertaken a project to open a third office in Cheyenne, Wyoming.
The additional office is expected to enhance the long-term growth of the
Company. While the impact of this project has not been significant so far, it is
expected that it will increase overhead expenses significantly next year. As
with any start-up operation, this office cannot be expected to produce a profit
until a deposit base sufficient to support the operation can be generated.
INCOME TAXES
Earnings before taxes decreased by $173,000 while the provision for income taxes
decreased $20,000 for the nine-month period ended September 30, 1999. The main
reason for the disproportionate decrease in income tax when compared to the
decrease in income before tax was due to the establishment, in the prior year,
of a deferred tax asset resulting from the difference between financial and tax
accounting for losses incurred from mortgage loan foreclosure and disposition.
LIQUIDITY AND CAPITAL RESOURCES
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 September 30, 1999
amounted to $410,210. 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:
9 Months Ended
September 30,
(in thousands)
------------------
1999 1998
Cash and cash equivalents at beginning of year $ 3,365 $ 2,639
------- -------
OPERATING ACTIVITIES:
Net Income 552 705
Adjustments to reconcile net income to
net cash provided by operation activities (112) 853
---- ---
Net cash provided by operating activities 440 1,558
Net cash provided (used) by investing activities (7,983) 3,786
Net cash provided (used) by financing activities 5,831 (4,316)
Net increase (decrease) in cash and cash equivalents (1,712) 1,028
------ -----
Cash and cash equivalents at end of period $ 1,653 $ 3,667
======= =======
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.
-15-
<PAGE>
The Bank anticipates it will have sufficient funds available to meet its current
loan commitments. At September 30, 1999, the Bank had outstanding commitments of
$2,455,308. Certificates of deposit scheduled to mature in one year or less at
September 30, 1999 totaled $23,859,159. 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 September 30,
1999, as compared to the minimum regulatory requirements:
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------------------------------------------
Dollars Ratio Dollars Ratio Dollars Ratio
<C> <S> <S> <S> <S> <S> <S>
September 30, 1999
Total Equity Capital (to risk-weighted assets) $8,460 22.00% $3,077 8.0% $3,846 10.0%
Tier 1 Capital (to risk-weighted assets) $8,221 21.38% $1,538 4.0% $2,307 6.0%
Tier 1 Capital (to adjusted total assets) $8,221 9.59% $3,430 4.0% $4,286 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.
YEAR 2000 COMPLIANCE
The following discussion of the implications of the year 2000 problem for us
contains a number of forward-looking statements. These statements reflect our
best current estimates, which were based on numerous assumptions about future
events, including the continued availability of certain resources,
representations received from third party service providers and other third
parties, and additional factors. There can be no guarantee that these estimates,
including year 2000 costs, will be achieved, and the actual results could cause
our estimates and the impact of the year 2000 issue to differ materially from
what is described in the forward-looking statements contained in the following
discussion. Those factors include, but are not limited to, uncertainties in the
cost of hardware and software, the availability and cost of programmers and
other systems personnel, inaccurate or incomplete execution of the phases,
ineffective remediation of computer code, the unpredictability of consumer
behavior, and whether our customers, vendors, competitors and other third
parties effectively address the year 2000 issues.
-16-
<PAGE>
Year 2000 issues expose us to a number of risks, any one of which, if realized,
could have a material adverse effect on our business, results of operations or
financial condition. These risks include the possibility that, to the extent
certain vendors fail to adequately address year 2000 issues, we may suffer
disruptions in important services on which we depend, such as
telecommunications, electrical power and data processing. Year 2000 issues could
affect our liquidity if customer withdrawals in anticipation of the year 2000
are greater than expected or if our lenders are unable to provide us with funds
when and as needed by us. Year 2000 issues also create additional credit risk to
us insofar as the failure of our customers to adequately address year 2000
issues could increase the likelihood that these customers become delinquent or
default on their obligations to us. In addition to increasing our risk exposure
to problem loans, credit losses, and liquidity problems, year 2000 issues expose
us to increased risk of litigation losses and expenses relating to the
foregoing.
During 1998, the Company adopted a Year 2000 Action Plan (the "Plan"). The
objectives of the Plan are to prepare the Company for the new millennium. As
recommended by the Federal Financial Institutions Examination Council, the Plan
encompasses the following phases: Awareness, Assessment, Renovation, Validation
and Implementation. These phases will enable the Company to identify risks,
develop detailed action plans, perform adequate testing, and complete
certification that its processing systems will be Year 2000 ready. Execution of
the Plan is currently on target. Prioritization of the most critical software
applications has been addressed, along with contract and service agreements. The
Bank determined it had three "mission-critical" applications. The three
mission-critical systems consist of operating software that is obtained from and
maintained by external providers. The three missions-critical providers have
renovated, validated and implemented their Year 2000 compliant software. The
Bank has also successfully completed extensive validation testing of the
implemented mission-critical systems.
The Bank has contacted all other material vendors and suppliers regarding their
Year 2000 state of readiness. Each of these third parties has delivered written
assurances to the Bank that their systems will be Year 2000 compliant prior to
December 31, 1999.
Costs will be incurred due to the replacement of non-compliant hardware and
software. The Company does not anticipate that the related overall costs will be
material in any single year. In total, the Company estimates that its costs for
compliance will amount to approximately $18,000 over the two-year period from
1998-1999. No assurance can be given that the Year 2000 Compliance Plan will be
completed successfully by the Year 2000, in which event the Company could incur
significant costs. Delays, mistakes or failures could have a significant adverse
impact on the operation and financial condition of the Company.
The Bank has formulated a specific, detailed Recovery Contingency Plan (RCP) for
each mission-critical application and broad contingency plans for non
mission-critical systems. The detailed plans specify how the Bank will deal with
the failure of the local or national power grids and/or the failure of the
telecommunications network. The RCP also details pre-opening and rollover test
procedures, management and staff training, and the independent validation of the
RCP. A "walk-through" of the portion of the RCP dealing with disruptions of the
core data processing system is scheduled for December of 1999. The Bank will be
working closely with the Office of Thrift Supervision in late December and
January of 2000 and has dedicated key personnel to this endeavor near year-end.
Successful and timely completion of the Year 2000 project is based on
Management's best estimates derived from various assumptions of future events,
which are inherently uncertain, including testing plans, and all vendors,
suppliers and customer readiness.
Despite the best efforts of Management to address this issue, the vast number of
external entities that have direct and indirect business relationships with us,
such as customers, vendors, payment system providers and other financial
institutions, makes it impossible to assure that a failure to achieve compliance
by one or more of these entities would not have a material diverse impact on our
operations.
-17-
<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 September 30, 1999. 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
Not Applicable.
Item 5. Other Information
On October 19, 1999, the Bank notified the Office of Thrift Supervision
that it would change its name from "Tri-County Federal Savings Bank" to
"Tri-County Bank," effective December 1, 1999.
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
-18-
<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: November 12, 1999 /s/ Robert L. Savage
------------------------- President and Chief Executive Officer
Date: November 12, 1999 /s/ Tommy A. Gardner
------------------------- Vice President and Chief Financial Officer
-19-
EXHIBIT 11
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
---------- ---------
<C> <S> <S>
EARNINGS PER SHARE
Net earnings available for common shares and common stock
equivalent shares deemed to have a dilutive effect $551,989 $705,104
======== ========
Basic earnings per share $0.63 $0.60
===== =====
Diluted earnings per share $0.59 $0.56
===== =====
Shares used in basic earnings per share computation
Weighted average common shares outstanding 881,005 1,167,498
======= =========
Shares used in diluted earnings per share computation
Weighted average common shares outstanding 941,549 1,258,601
Additional potentially dilutive effect of stock options 60,544 91,103
------ ------
881,005 1,167,498
======= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,242,346
<INT-BEARING-DEPOSITS> 410,210
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 28,071,431
<INVESTMENTS-CARRYING> 7,163,968
<INVESTMENTS-MARKET> 7,245,024
<LOANS> 47,198,645
<ALLOWANCE> 399,462
<TOTAL-ASSETS> 86,859,149
<DEPOSITS> 47,791,130
<SHORT-TERM> 7,883,000
<LIABILITIES-OTHER> 28,855,880
<LONG-TERM> 16,092,367
0
0
<COMMON> 153,340
<OTHER-SE> 10,058,799
<TOTAL-LIABILITIES-AND-EQUITY> 86,859,149
<INTEREST-LOAN> 2,700,684
<INTEREST-INVEST> 1,612,767
<INTEREST-OTHER> 55,024
<INTEREST-TOTAL> 4,368,475
<INTEREST-DEPOSIT> 1,493,926
<INTEREST-EXPENSE> 2,510,974
<INTEREST-INCOME-NET> 1,857,501
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 3,696
<EXPENSE-OTHER> 1,188,491
<INCOME-PRETAX> 827,626
<INCOME-PRE-EXTRAORDINARY> 551,986
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 551,986
<EPS-BASIC> 0.63
<EPS-DILUTED> 0.59
<YIELD-ACTUAL> 3.07
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 399,462
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 399,462
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 399,462
</TABLE>
