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, 2000
------------------------------------------
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
-----------------------------
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 October 31, 2000.
Class Outstanding
------------------------------- ----------------------------------------
$.10 par value common stock 875,494
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, 2000 and
December 31, 1999 (unaudited).............................3
Condensed Consolidated Statements of Operations
for the Three Months and Nine Months Ended
September 30, 2000 and 1999 (unaudited)...................4
Condensed Consolidated Statements of Stockholder's Equity
for the Nine Months Ended September 30, 2000
and 1999 (unaudited)......................................5
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 2000
and 1999 (unaudited)......................................6
Notes to Condensed Consolidated Financial Statements......7
Item 2. Management's Discussion and Analysis or Plan
of Operation..............................................9
PART II OTHER INFORMATION
Item 1. Legal Proceedings........................................17
Item 2. Changes in Securities....................................17
Item 3. Default Upon Senior Securities...........................17
Item 4. Submissions of Matters to a Vote of Security Holders.....17
Item 5. Other Information........................................17
Item 6. Exhibits and Reports on Form 8-K.........................17
SIGNATURES........................................................18
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
(unaudited)
---------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,286,004 $ 1,187,935
Interest-bearing deposits with banks 362,774 1,128,404
Securities available for sale, at fair value 26,150,273 27,238,804
Securities held to maturity, market value of
$7,252,142 (2000) and $7,277,109 (1999) 7,201,859 7,237,691
Loans held for sale, at market value 88,227 -
Loans receivable, net of allowance for loan losses of
$464,000 (2000) and $464,453 (1999) 58,766,590 48,979,883
Accrued interest receivable 869,396 642,561
Bank property and equipment 2,712,412 2,028,288
Other assets 91,821 72,270
------ ------
Total Assets $97,529,356 $88,515,836
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits $ 1,461,195 $ 997,117
Savings and NOW deposits 16,486,457 16,224,450
Time deposits 36,493,222 34,587,587
---------- ----------
Total Deposits 54,440,874 51,809,154
Advance from Federal Home Loan Bank 31,712,742 25,558,367
Accounts payable and accrued expenses 349,856 370,245
Advances by borrowers for taxes and insurance 149,707 115,691
Deferred income taxes 588,958 411,587
------- -------
Total Liabilities 87,242,137 78,265,044
---------- ----------
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, 1,561,345 (2000) and
1,548,611 (1999) shares issued 156,135 154,861
Additional paid-in capital 7,636,346 7,530,906
Retained earnings - substantially restricted 9,665,932 9,663,761
Unearned compensation relating to Employee Stock
Ownership Plan (179,400) (224,250)
Accumulated other comprehensive income 560,919 272,904
Treasury stock, 685,851 (2000) and 642,377 (1999)
shares, at cost (7,552,713) (7,147,390)
---------- ----------
Total Stockholders' Equity 10,287,219 10,250,792
---------- ----------
Total Liabilities and Stockholders' Equity $97,529,356 $88,515,836
=========== ===========
</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
Sept. 30, Sept. 30,
2000 1999 2000 1999
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income
Loans $1,227,915 $ 933,777 $3,330,965 $2,700,684
Securities available for sale 421,152 450,443 1,275,566 1,333,059
Securities held to maturity 143,640 106,157 436,033 279,708
Other interest earning assets 4,085 6,674 17,219 55,024
----- ----- ------ ------
Total Interest Income 1,796,792 1,497,051 5,059,783 4,368,475
--------- --------- --------- ---------
Interest Expense
Deposits 678,342 507,461 1,870,223 1,493,926
Advances and other borrowings 505,183 363,465 1,327,248 1,017,048
------- ------- --------- ---------
Total Interest Expense 1,183,525 870,926 3,197,471 2,510,974
--------- ------- --------- ---------
Net Interest Income 613,267 626,125 1,862,312 1,857,501
------- ------- --------- ---------
Provision for credit losses - - - -
------- ------- --------- ---------
Net Interest Income After Provision
for Credit Losses 613,267 626,125 1,862,312 1,857,501
------- ------- --------- ---------
Non-interest Income
Gain on sale of loans 3,114 9,060 18,729 35,468
Gain (loss) on sale of
available-for-sale securities - - (6,157) 3,696
Service charges on deposits 42,585 35,560 120,207 97,147
Other, net 16,586 9,557 41,956 22,305
------ ----- ------ ------
Total Non-interest Income 62,285 54,177 174,735 158,616
------ ------ ------- -------
Non-interest Expense
Compensation and benefits 338,341 256,482 950,885 680,057
Occupancy and equipment 110,521 80,080 305,150 245,761
Federal deposit insurance premium 2,665 6,718 7,864 20,183
Other, net 98,252 85,866 331,758 242,490
------ ------ ------- -------
Total Non-interest Expense 549,779 429,146 1,595,657 1,188,491
------- ------- --------- ---------
Earnings Before Income Taxes 125,773 251,156 441,390 827,626
Provision for Income Taxes 47,600 81,940 151,300 275,640
------ ------ ------- -------
Net Earnings $ 78,173 $ 169,216 $ 290,090 $ 551,986
========== ========== ========== ==========
Earnings Per Common Share - Diluted $0.09 $0.20 $0.32 $0.59
===== ===== ===== =====
Cash Dividend Paid Per Common Share $0.11 $0.11 $0.33 $0.33
===== ===== ===== =====
</TABLE>
See notes to condensed consolidated financial statements.
-4-
<PAGE>
<TABLE>
<CAPTION>
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Nine Months Ended September 30, 1999 and 2000
(unaudited)
Employee Accumulated
Additional Stock Other
Common Paid-In Retained Ownership Comprehensive Treasury
Stock Capital Earnings Plan Income Stock Total
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
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
======== ========== ========== ========= ======== =========== ===========
Balance - December 31, 1999 $154,861 $7,530,906 $9,663,761 ($224,250) $272,904 ($7,147,390) $10,250,792
Net earnings - - 290,090 - - - 290,090
Other comprehensive income:
Unrealized market adjustments, net of
tax and reclassification adjustment 288,015 288,015
----------------------------------------------------------------------------------------
Comprehensive income - - 290,090 - 288,015 - 578,105
----------------------------------------------------------------------------------------
Repayment of ESOP debt - - - 44,850 - - 44,850
Allocation of ESOP shares - 43,044 - - - - 43,044
Dividends paid - cash - - (287,918) - - - (287,918)
Stock options exercised 1,272 62,397 - - - - 63,669
Treasury stock purchased - - - - - (405,323) (405,323)
-------- ---------- ---------- --------- -------- -------- --------
Balance - September 30, 2000 $156,133 $7,636,347 $9,665,933 ($179,400) $560,919 ($7,552,713) $10,287,219
======== ========== ========== ========= ======== =========== ===========
</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,
2000 1999
-------------------------
<S> <C> <C>
Operating Activities
Net Income $290,090 $551,986
Adjustments to reconcile net income to net cash provided
(used) by operations
Depreciation and amortization 101,415 115,787
Provision for deferred taxes 29,000 29,998
Loss (Gain) on sale of securities available for sale 6,157 (3,696)
Gain on sale of loans (10,509) (24,567)
FHLB stock dividend received (93,100) (99,000)
Changes in assets and liabilities
Origination of loans held for sale (838,966) (2,767,195)
Proceeds from sale of loans held for sale 761,248 2,668,196
Accrued interest receiveable (226,836) (202,373)
Other assets, net (76,536) 132,926
Other liabilities, net 79,637 30,153
------ ------
Net Cash Provided (Used) by Operations $21,600 $432,215
------- --------
Investing Activities
Net loan originations and principal repayments on loans $(629,527) $(642,301)
Purchase of loans (9,157,178) (4,297,922)
Activity in available for sale securities
Sales proceeds 320,000 3,440,720
Maturities, prepayments and calls 1,284,940 5,845,007
Purchases - (9,499,419)
Activity in hold to maturity securities
Maturities, prepayments and calls 1,030,424 1,167,112
Purchases (995,000) (2,998,975)
Investment in property and equipment (778,211) (989,712)
-------- --------
Net Cash Provided (Used) by Investing Activities $(8,924,552) $(7,975,490)
----------- -----------
Financing Activities
Net increase (decrease) in deposits $2,631,720 $1,817,045
Net increase (decrease) in advances from borrowers for
taxes and insurance 34,016 44,388
FHLB borrowings 29,715,000 10,200,000
Repayment of FHLB advance (23,560,625) (6,035,625)
Payments received from ESOP 44,850 44,850
Exercise of stock options 63,670 64,850
Treasury stock purchased (405,323) (13,043)
Cash dividends paid (287,917) (291,678)
-------- --------
Net Cash Provided (Used) by Financing Activities $8,235,391 $5,830,787
---------- ----------
Increase (Decrease) in Cash and Cash Equivalents $(667,561) $(1,712,488)
Cash and cash equivalents - beginning of period $2,316,339 $3,365,044
---------- ---------
Cash and cash equivalents - end of period $1,648,778 $1,652,556
========== ==========
Cash and due from banks $1,286,004 $1,242,346
Interest-bearing deposits with banks 362,774 410,210
------- -------
$1,648,778 $1,652,556
========== ==========
Supplemental Disclosure of Cash Flow Information
Cash paid for:
Interest expense $3,277,156 $2,507,359
========== ==========
Income taxes $238,900 $255,400
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
-6-
<PAGE>
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(unaudited)
NOTE 1 - BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements include the accounts
of Tri-County Bancorp, Inc. (the "Company"), Tri-County Bank (formerly
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 1999 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, 1999.
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, 2000 are
not necessarily indicative of the results which may be expected for the year
ending December 31, 2000 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."
Investment and mortgage-backed securities designated as held to maturity are
stated at cost adjusted for amortization of the related premiums and accretion
of discounts, computed using the level yield method. The Company has the
positive intent and ability to hold these securities to maturity.
Investment and mortgage-backed securities designated as available for sale are
stated at estimated market value. Unrealized gains and losses are aggregated and
reported as a separate component of equity capital, net of deferred taxes. These
securities are acquired with the intent to hold them to maturity, but they are
available for disposal in the event of unforeseen liquidity needs.
-7-
<PAGE>
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, 2000 and 1999.
<TABLE>
<CAPTION>
Before-Tax Tax Benefit Net-of-Tax
Amount or (Expense) Amount
---------- ------------ ----------
<S> <C> <C> <C>
For the Nine Months ended September 30, 1999
Accumulated Comprehensive Income - Dec. 31, 1998 $1,676,820 ($570,119) $1,106,701
Unrealized hold gains (losses) arising during the period (951,465) 323,499 (627,966)
Gain (Loss) reclassification adjustment for gains
(losses) realized in net earnings 3,696 (1,257) 2,439
----- ------ -----
Accumulated Comprehensive Income - September 30, 1999 $729,051 ($247,877) $481,174
======== ========= ========
For the Nine Months ended September 30, 2000
Accumulated Comprehensive Income - Dec. 31, 1999 $413,491 ($140,587) $272,904
Unrealized hold gains (losses) arising during the period 442,543 (150,464) 292,079
Gain (Loss) reclassification adjustment for for gains
(losses) realized in net earnings (6,157) 2,093 (4,064)
------ ----- ------
Accumulated Comprehensive Income - September 30, 2000 $849,877 ($288,958) $560,919
======== ========= ========
</TABLE>
On June 15, 1998, the financial Accounting Standards Board (FASB) issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No.
133, effective for fiscal years beginning after June 15, 2000, establishes a new
model for accounting for derivatives and hedging activities. Upon the
Statement's initial application, all derivative instruments are required to be
recognized in the statement of financial position as either assets or
liabilities and measured at fair value. FASB also issued SFAS No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging Activities.
SFAS No. 138 will be adopted concurrently with SFAS No. 133 on January 1, 2001.
Company management does not expect the adoption of SFAS No 133 and 138 to have a
material impact on the financial statements.
-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 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
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
Total assets of the Bank increased by $9.01 million or 10.18% during the first
nine months of 2000. The increase was primarily the result of increases in loans
receivable and bank property and equipment which more than offset decreases in
interest earning deposits and securities available for sale.
Securities available for sale decreased by $1.09 million during the nine months
ended September 30, 2000. The Bank redeemed shares in a mutual fund totaling
$326,000 and principal payments and prepayments of $1.28 million were received
on mortgage-backed securities which more than offset an increase of $436,000 in
the market value of the portfolio.
Securities held to maturity decreased by $36,000 during the first nine months of
2000. The decrease was the result of the receipt of principal payments and
prepayments of $1.03 million on the Bank's portfolio of mortgage-backed
securities, which more than offset the purchase of an agency security totaling
$995,000.
Loans receivable increased $9.79 million or 19.98% during the nine months ended
September 30, 2000. During this period the Bank originated or purchased
portfolio residential mortgage loans totaling $12.57 million, non-residential
mortgage loans totaling $1.72 million, consumer loans totaling $3.41 million,
and commercial loans totaling $3.87 million. During the same period the Bank
received scheduled principal payments and prepayments totaling $11.54 million on
its loan portfolio. Of the total mortgage loans originated or purchased during
the year, $9.58 million were adjustable rate and $4.71 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 total 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.
-9-
<PAGE>
Bank property and equipment increased by $684,000 and was primarily the result
of the completion of a new branch bank located in Cheyenne, Wyoming. The total
cost of the facility was $1.35 million and the opening date was April 3, 2000.
LIABILITIES
Total liabilities of the Bank increased $8.98 million or 11.47% during the first
nine months of 2000. Increases of $2.63 and $6.15 million in deposits and
Federal Home Loan Bank advances primarily caused the increase, respectively.
Deposit balances increased by $2.63 million or 5.08% from $51.81 million at
December 31, 1999 to $54.44 million at September 30, 2000. The increase
consisted of increases of $464,000, $262,000, and $1.91 million in demand
deposits, savings and NOW deposits, and time deposits, respectively.
Advances from the Federal Home Loan Bank ("FHLB") increased $6.15 million during
the first nine months of 2000. The advances are a supplement to the Bank's
retail deposits and were primarily used to fund loan originations and purchases.
Deferred income taxes increased by $177,000 during 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
increased $436,000 during the period, which resulted in an increase in deferred
income taxes.
STOCKHOLDERS' EQUITY
Overall, stockholders' equity increased $36,000 during the first nine months of
2000.
The increase in additional paid-in capital of $105,000 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 $43,000. Also, directors and officers of the Bank exercised options
on 12,734 shares of common stock, which increased additional paid-in capital by
$62,000.
The increase in retained earnings was the result of net earnings totaling
$290,000 which offset the decrease in retained earnings caused by the payments
of dividends of $0.33 per share totaling $288,000.
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 nine months of 2000 and resulted in an increase, net of deferred income
tax, of $288,000 in stockholder's equity.
The increase in treasury stock of $405,000 was the result of the repurchase of
43,474 shares during the first nine months of 2000 at an average price of $9.323
per share.
-10-
<PAGE>
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
2000 AND SEPTEMBER 30, 1999
NET INCOME
Net income decreased $91,000 during the quarter ended September 30, 2000 when
compared to 1999. Net interest income decreased by $13,000, non-interest income
increased by $8,000 and non-interest expense increased by $121,000. The
provision for income taxes decreased by $34,000.
INTEREST INCOME
Interest income from loans increased $294,000 or 31.50% for the quarter ended
September 30, 2000. The increase was the result of an increase in the average
balance of loans outstanding of $12.02 million and an increase in the yield from
7.92% to 8.30%.
The decrease of $29,000 in interest and dividends on securities available for
sale was the result of a decrease in the average balance of securities of $2.68
million, which more than offset an increase in the average yield on the
portfolio from 6.33% to 6.54%. The increase in yield was primarily the result of
an increase in yield on mortgage-backed securities with adjustable interest
rates held in the portfolio.
Interest on securities held to maturity increased $37,000 and was caused
primarily by an increase in the average balance of the portfolio of $966,000 and
an increase in the yield on the portfolio from 6.74% to 7.93%. The increase in
yield was primarily the result of the purchase of securities with yields greater
than the yield on the existing portfolio and an increase in yield on
mortgage-backed securities with adjustable interest rates held in the portfolio.
The decrease in income from other interest-earning assets of $3,000 was
primarily caused by a decrease in the average balance of these assets that more
than offset an increase in the yield on these assets. This category of assets
consists primarily of interest-earning demand deposits held at FHLB.
INTEREST EXPENSE
Interest expense on deposits increased $171,000 during the third quarter of 2000
when compared to the third quarter of 1999. This increase was the result of an
increase in the average cost of deposits from 4.33% to 5.10% and an increase of
$6.33 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. The average balance of these
borrowings was $4.85 million greater during the third quarter of 2000 than in
1999 and the average cost of the borrowings increased from 5.47% to 6.44%, which
resulted in an increase of $142,000 in interest expense.
PROVISION FOR LOAN LOSSES
No provision for loan losses was made during the quarter ended September 30,
2000. 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 $464,000 at quarter-end. 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.
-11-
<PAGE>
NON-INTEREST INCOME
Total non-interest income increased by $8,000 during the three-month period
ended September 30, 2000 when compared to the same period of 1999.
The decrease in the gain on sale of loans of $6,000 was the result of a decrease
in the dollar amount of loans sold.
Service charges on deposits increased $7,000 mainly because of an increase in
chargeable events and an increase in November of 1999 in the amount of the
Non-Sufficient Funds ("NSF") charge.
The increase in other income of $7,000 was the result of increases in loan
servicing fees, Automated Teller Machine surcharges, and the sale of collectible
coins and credit life and disability insurance.
NON-INTEREST EXPENSE
Overall, non-interest expense increased $121,000 during the quarter ended
September 30, 2000.
Compensation and benefits increased by $82,000 in 2000 and was primarily caused
by the hiring of additional personnel to staff the Bank's new branch in
Cheyenne.
Occupancy and equipment expense increased by $30,000 during the period and was
primarily caused by the increases in depreciation and data processing charges
related to the opening of the Bank's new branch in Cheyenne.
Other expenses increased by $12,000 when compared to the same period of the
previous year. The increase in expenses was mainly caused by increased marketing
expenses, additional travel expenses and the purchase of miscellaneous supplies
in connection with the opening of the Bank's Cheyenne branch.
As previously mentioned, the Bank opened a third office in Cheyenne, Wyoming.
The additional office is expected to enhance the long-term growth of the Company
but is expected to increase overhead expenses significantly for the near future.
As with any start-up, this office cannot be expected to produce a profit until a
deposit base sufficient to support the operation can be generated.
INCOME TAXES
The provision for income taxes decreased by $34,000. The main reason for the
decrease in income taxes was the decrease in income before taxes.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2000 AND SEPTEMBER 30, 1999
NET INCOME
Net income decreased $262,000 during the nine months ended September 30, 2000
when compared to the first nine months of 1999. Net interest income increased by
$5,000, non-interest income increased by $16,000 and non-interest expense
increased by $407,000. The provision for income taxes decreased by $124,000.
-12-
<PAGE>
INTEREST INCOME
Interest income from loans increased $630,000 or 23.34% for the nine months
ended September 30, 2000. The increase was the result of an increase in the
average balance of loans outstanding of $9.77 million and an increase in yield
from 8.01% to 8.11%.
The decrease of $57,000 in interest and dividends on securities available for
sale was the result of a decrease in the average balance of securities of $3.06
million, which more than offset an increase in the average yield on the
portfolio from 6.10% to 6.55%. The increase in yield was primarily the result of
an increase in yield on mortgage-backed securities with adjustable interest
rates held in the portfolio.
Interest on securities held to maturity increased $156,000 and was caused
primarily by an increase in the average balance of the portfolio of $2.18
million and an increase in the yield on the portfolio from 7.15% to 7.86%. The
increase in yield was primarily the result of the purchase of securities with
yields greater than the yield on the existing portfolio and an increase in yield
on mortgage-backed securities with adjustable interest rates held in the
portfolio.
The decrease in income from other interest-earning assets of $39,000 was
primarily caused by a decrease in the average balance of these assets that more
than offset an increase in the yield on these assets. This category of assets
consists primarily of interest-earning demand deposits held at FHLB.
INTEREST EXPENSE
Interest expense on deposits increased $376,000 during the first nine months of
2000 when compared to the same period of 1999. This increase was the result of
an increase in the average cost of deposits from 4.29% to 4.79% and an increase
of $5.61 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. The average balance of these
borrowings was $4.02 million greater during the first nine months of 2000 than
in 1999 and the average cost of the borrowings increased from 5.47% to 6.14%,
which resulted in an increase of $310,000 in interest expense.
PROVISION FOR LOAN LOSSES
No provision for loan losses was made during the nine-month period ended
September 30, 2000. 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 $464,000 at
September 30, 2000. 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 increased by $16,000 during the nine-month period
ended September 30, 2000 when compared to 1999.
The decrease in the gain on sale of loans of $17,000 was the result of a
decrease in the dollar amount of loans sold.
-13-
<PAGE>
The Bank sold available for sale securities in the previous year and recognized
a gain of $4,000 while securities sold in the current year produced a loss of
$6,000.
Service charges on deposits increased $23,000 mainly because of an increase in
chargeable events and an increase, in November of 1999, in the amount of the NSF
charge.
The increase in other income of $20,000 was the result of increases in loan
servicing and document preparation fees, Automated Teller Machine surcharges,
and the sale of collectible coins and credit life and disability insurance.
NON-INTEREST EXPENSE
Overall, non-interest expense increased $407,000 during the nine-month period
ended September 30, 2000.
Compensation and benefits increased by $271,000 in 2000 and was primarily caused
by the hiring of additional personnel to staff the Bank's new branch in Cheyenne
and to enable the Bank to originate commercial and agricultural loans.
Occupancy and equipment expense increased by $59,000 during the period and was
primarily caused by the increases in depreciation, data processing charges,
utilities and taxes related to the opening of the Bank's new branch in Cheyenne.
Other expenses increased by $89,000 when compared to the same period of the
previous year. The increase in expenses was mainly caused by increased marketing
expenses, additional travel expenses and the purchase of miscellaneous supplies
in connection with the opening of the Bank's Cheyenne branch.
As previously mentioned, the Bank opened a third office in Cheyenne, Wyoming.
The additional office is expected to enhance the long-term growth of the Company
but is expected to increase overhead expenses significantly for the near future.
As with any start-up, this office cannot be expected to produce a profit until a
deposit base sufficient to support the operation can be generated.
INCOME TAXES
The provision for income taxes decreased by $124,000. The main reason for the
decrease in income taxes was the decrease in income before taxes of $386,000.
YEAR 2000
Like many financial institutions, we rely on computers to conduct our business
and information systems processing. Industry experts were concerned that on
January 1, 2000, some computers might not be able to interpret the new year
properly, causing computer malfunctions. Some banking industry experts remain
concerned that some computers may not be able to property interpret additional
dates in the year 2000. We have operated and evaluated our computer operating
systems since January 1, 2000 and have not identified any errors or experienced
any computer system malfunctions. We will continue to monitor our information
systems to assess whether they are at risk of misinterpreting any future dates
and will develop appropriate contingency plans to prevent any potential system
malfunction or correct any system failures. The Company has not been informed of
any such problem experienced by its vendors or its customers, nor by any of the
municipal agencies that provide services to the Company.
-14-
<PAGE>
Nevertheless, it is too soon to conclude that there will not be any problems
arising from the Year 2000 problem, particularly at some of the Company's
vendors. The Company will continue to monitor its significant vendors of goods
and services with respect to Year 2000 problems they may encounter as those
issues may effect the Company's financial position, results of operations and
cash flows. The Company does not believe at this time that these potential
problems will materially impact the ability of the Company to continue its
operations, however, no assurance can be given that this will be the case.
The expectations of the Company contained in this section on Year 2000 are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and involve substantial risks and uncertainties
that may cause actual results to differ materially from those indicated by the
forward-looking statements. All forward-looking statements in this section are
based on information available to the Company on the date of this document, and
the Company assumes no obligation to update such forward-looking statements.
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, 2000
amounted to $362,774. 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)
-----------------------
2000 1999
Cash and cash equivalents at beginning of year $2,316 $3,365
------ ------
OPERATING ACTIVITIES:
Net Income $290 $552
Adjustments to reconcile net income to
net cash provided by operation activities (268) (120)
---- ----
Net cash provided (used) by operating activities $22 $432
Net cash used by investing activities (8,925) (7,975)
Net cash provided by financing activities 8,235 5,831
----- ------
Net increase (decrease) in cash and cash equivalents $(668) $(1,712)
----- -------
Cash and cash equivalents at end of period $1,649 $1,653
====== ======
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 September 30, 2000, the Bank had outstanding commitments of
$1,839,789. Certificates of deposit scheduled to mature in one year or less at
September 30, 2000 totaled $31,999,163. Based on past experience, Management
believes that a substantial portion of such deposits will remain with the Bank.
-15-
<PAGE>
The following table sets forth the Bank's capital position at September 30,
2000, 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
<S> <C> <C> <C> <C> <C> <C>
September 30, 2000
Total Equity Capital (to risk-weighted assets) $9,159 18.4% $3,968 8.0% $4,960 10.0%
Tier 1 Capital (to risk-weighted assets) $8,596 17.3% $1,984 4.0% $2,976 6.0%
Tier 1 Capital (to adjusted total assets) $8,596 8.9% $3,868 4.0% $4,835 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.
-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 September 30, 2000. 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
The Company's Chief Financial Officer, Tommy A. Gardner has resigned,
effective January 2, 2001 to pursue other interests. Mr. Gardner has been
with the Bank since 1979 and played an important role when the Bank
converted from a mutual savings and loan to a public company in 1993. Mr.
Gardner's resignation was voluntary and therefore, according to his
employment agreement, no separation package will be charged to operations.
The Company has commenced a search for a chief financial officer. Until the
position is filled, other members of the Bank's senior management team will
assume the position's responsibilities.
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
Not Applicable
-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: November 10, 2000 /s/ Robert L. Savage
-------------------------
President and Chief Executive Officer
Date: November 10, 2000 /s/ Tommy A. Gardner
-------------------------
Vice President and Chief Financial Officer
-18-
