<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
( ) TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 1-13826
THREE RIVERS FINANCIAL CORPORATION
----------------------------------
(Exact name of registrant as specified in its charter)
Delaware 38-3235452
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(State or other jurisdiction of (IRS Employer ID No)
Incorporation or organization)
123 Portage Avenue, Three Rivers, Michigan 49093
------------------------------------------------
(Address of principal executive offices) (Zip Code)
(616) 279-5117
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Registrant's telephone number, including area code
N/A
---
Former name, address, and fiscal year, if changed since last report
Check whether the registrant (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 requirement for the past 90
days. YES X NO
--- ---
Indicate the number of shares outstanding of each of the registrant's
classes of common equity as of the latest practicable date:
824,540 shares of Common Stock, Par Value $.01 per share as of May 12, 1998
Transitional Small Business Disclosure Format (check one): Yes ; No X
--- ---
<PAGE> 2
THREE RIVERS FINANCIAL CORPORATION
THREE RIVERS, MICHIGAN
FORM 10QSB
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements of Three Rivers Financial Corporation (Unaudited)
Condensed Consolidated Balance Sheets as of March 31, 1998
and June 30, 1997 1
Condensed Consolidated Statements of Income for the three and nine months
ended March 31, 1998 and 1997 2
Condensed Consolidated Statement of Changes in Shareholders' Equity 3
Consolidated Statements of Cash Flows for the nine months ended
March 31, 1998 and 1997 4
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 9
PART II. OTHER INFORMATION 14
Signatures 15
</TABLE>
<PAGE> 3
THREE RIVERS FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 1998 and June 30, 1997
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<TABLE>
<CAPTION>
March 31, June 30
1998 1997
---- ----
(unaudited)
<S> <C> <C>
ASSETS
Cash and due from other financial institutions $ 3,071,596 $ 2,724,565
Interest-earning deposits with other financial institutions 7,348,485 4,713,428
------------ ------------
Cash and cash equivalents 10,420,081 7,437,993
Interest-earning time deposits with other financial institutions 3,965,980 3,470,980
Securities held to maturity (fair value: $15,178,729 at
March 31, 1998, and $17,891,461 at June 30, 1997) 15,060,083 17,924,950
Loans receivable, net of allowance for loan losses of
$473,979 at March 31, 1998, and $487,184 at June 30, 1997) 63,435,161 61,812,630
Federal Home Loan Bank Stock 1,112,200 1,042,300
Accrued interest receivable 482,864 450,892
Premises and equipment, net 2,355,064 1,435,603
Foreclosed real estate 61,243 415,059
Investment in low-income housing partnership 436,086 473,117
Other assets 734,524 666,385
------------ ------------
Total assets $ 98,063,286 $ 95,129,909
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Demand deposits $ 2,850,210 $ 2,551,384
Savings and NOW deposits 21,299,067 19,932,473
Other time deposits 37,075,579 37,860,935
------------ ------------
Total deposits 61,224,856 60,344,792
Borrowed funds 21,743,737 20,344,287
Advances from borrowers for taxes and insurance 316,648 399,331
Due to low-income housing partnership 323,622 413,192
Accrued expenses and other liabilities 1,192,525 825,563
------------ ------------
Total liabilities 84,801,388 82,327,165
Shareholders' equity
Preferred stock, par value $0.01; 500,000 shares authorized;
none outstanding
Common stock, par value $0.01; 2,000,000 shares authorized;
831,925 shares issued; 824,540 outstanding at March 31,
1998, and 823,540 outstanding at June 30, 1997 8,319 8,319
Additional paid-in-capital 7,667,703 7,619,120
Retained earnings, substantially restricted 6,468,113 6,110,757
------------ ------------
14,144,135 13,738,196
Unearned Employee Stock Ownership Plan shares (561,626) (561,626)
Unearned Recognition and Retention Plan shares (222,369) (262,281)
Treasury stock at cost, (7,385 shares at March 31, 1998
and 8,385 shares at June 30, 1997) (98,242) (111,545)
------------ ------------
Total shareholders' equity 13,261,898 12,802,744
------------ ------------
Total liabilities and shareholders' equity $ 98,063,286 $ 95,129,909
============ ============
</TABLE>
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The accompanying notes are an integral part of these consolidated financial
statements.
1
<PAGE> 4
THREE RIVERS FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three and nine months ended March 31, 1998 and 1997
(Unaudited)
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<TABLE>
<CAPTION>
Three Months Ended Nine months ended
March March March March
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Interest income
Loans Receivable $1,390,109 $1,275,208 $4,162,304 $ 3,802,132
Securities 268,162 288,937 871,412 977,740
Other interest-earning assets 146,849 97,083 378,835 244,338
---------- ---------- ---------- -----------
Total interest income 1,805,120 1,661,228 5,412,551 5,024,210
Interest expense
Deposits 656,684 635,190 2,006,724 1,994,918
Borrowed funds 303,067 228,614 867,301 529,565
---------- ---------- ---------- -----------
Total interest expense 959,751 863,804 2,874,025 2,524,483
---------- ---------- ---------- -----------
NET INTEREST INCOME 845,369 797,424 2,538,526 2,499,727
Provision for loan losses 15,000 15,000 45,000 45,000
---------- ---------- ---------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 830,369 782,424 2,493,526 2,454,727
Noninterest income
Loan Servicing 29,283 33,160 90,696 94,573
Net gains on sales of loans 39,284 8,747 87,533 33,590
Net gains on sales of foreclosed real estate 0 0 20,038 16,717
Net loss on sales of fixed assets 0 0 0 (1,003)
Service charges on deposit accounts 49,628 42,996 159,447 152,815
Other 46,813 41,509 118,305 83,338
---------- ---------- ---------- -----------
165,008 126,412 476,019 380,030
Noninterest expense
Compensation and benefits 338,148 321,902 1,018,067 956,267
Occupancy and equipment 134,512 114,229 353,551 329,035
SAIF deposit insurance premium 9,542 10,128 28,487 487,017
Advertising and promotion 25,371 16,796 85,173 76,598
Data processing 58,564 30,703 161,551 133,690
Professional fees 29,128 22,641 89,586 77,254
Printing, postage, stationery, and supplies 45,096 28,592 95,960 79,456
Other 78,698 92,748 252,318 250,558
---------- ---------- ---------- -----------
719,059 637,739 2,084,693 2,389,875
---------- ---------- ---------- -----------
INCOME BEFORE FEDERAL INCOME TAXES 276,318 271,097 884,852 444,882
Federal income tax expense 88,750 90,700 269,600 154,410
---------- ---------- ---------- -----------
NET INCOME $ 187,568 $ 180,397 $ 615,252 $ 290,472
========== ========== ========== ===========
Basic Earnings per Share $ 0.25 $ 0.23 $ 0.82 $ 0.37
Diluted Earnings per Share 0.24 0.23 0.80 0.37
========== ========== ========== ===========
</TABLE>
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The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE> 5
THREE RIVERS FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Nine months ended March 31, 1998
(Unaudited)
- --------------------------------------------------------------------------------
Balance at June 30, 1997 $12,802,744
Net income 615,252
Effect of shares committed to be released by ESOP, 48,584
at market value
Cash dividends declared on common stock @ $0.31 per share (257,897)
Amortization of 2,650 RRP shares 53,215
-----------
Balance at March 31, 1998 $13,261,898
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The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 6
THREE RIVERS FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended March 31, 1998 and 1997
(Unaudited)
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<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 615,252 $ 290,472
Adjustments to reconcile net income to
net cash provided from operating activities
Depreciation of premises and equipment 166,385 149,155
Net accretion on securities (54,088) (22,520)
Provision for loan losses 45,000 45,000
RRP expense 53,215 51,885
ESOP expense 48,583 18,986
Loans originated for sale (3,750,575) (1,811,349)
Proceeds from sale of loans held for sale 3,838,109 1,844,939
Net gains on sales of loans (87,534) (33,590)
Net gains on sales of foreclosed real estate (19,639) (5,736)
Change in
Accrued interest receivable and other assets (100,110) (498,945)
Accrued expenses and other liabilities 366,962 60,231
----------- -----------
Net cash provided by operating activities 1,121,560 88,528
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease (increase) in interest-earning time
deposits with other financial institutions $ (495,000) $ 694,000
Net increase in loans (1,696,939) (4,180,987)
Net premises and equipment expenditures (1,085,846) (79,471)
Purchases of securities held to maturity (2,487,913) (1,746,392)
Proceeds from maturities on securities held to maturity 2,500,000
Paydowns on securities held to maturity 2,906,868 2,817,102
Purchase of Federal Home Loan Bank Stock (69,900) (298,600)
Proceeds from sale of foreclosed real estate 402,863 42,500
Net change in investment in low-income housing partnership (52,539) (8,286)
----------- -----------
Net cash (used in) investing activities (78,406) (2,760,134)
</TABLE>
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(Continued)
4
<PAGE> 7
THREE RIVERS FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended March 31, 1998 and 1997
(Unaudited)
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<TABLE>
<CAPTION>
CASH FLOWS FROM FINANCING ACTIVITIES 1998 1997
---- ----
<S> <C> <C>
Net increase (decrease) in deposits $ 880,064 $ (3,727,526)
Net change in advances from borrowers for taxes
and insurance (82,683) (179,447)
Proceeds from borrowed funds 11,750,000 14,250,000
Repayments of borrowed funds (10,350,550) (6,116,322)
Cash dividends paid (257,897) (219,205)
Repurchase of stock - (387,537)
------------ ------------
Net cash provided by financing activities 1,938,934 3,619,963
------------ ------------
Net change in cash and cash equivalents 2,982,088 948,357
Cash and cash equivalents at beginning of period 7,437,993 4,111,621
------------ ------------
Cash and cash equivalents at end of period $ 10,420,081 $ 5,059,978
============ ============
Supplemental disclosures of cash flow information
Cash paid for
Interest on deposits, advances and other
borrowings $ 2,869,276 $ 2,546,451
Income taxes 73,950 262,000
Transfers from loans to real estate acquired
through foreclosure 29,408 62,034
</TABLE>
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The accompanying notes are an integral part of these consolidated financial
statements
5
<PAGE> 8
THREE RIVERS FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nine months ended March 31, 1998
(Unaudited)
Note 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for Form 10-QSB and,
therefore, do not include all disclosures required by generally
accepted accounting principals for complete presentation of financial
statements. The unaudited information for the nine months ended March
31, 1998, and 1997 includes the consolidated results of operations of
Three Rivers Financial, Inc. (the "Company") and its wholly-owned
subsidiary First Savings Bank, FSB (the "Bank"). In the opinion of
management, the information reflects all adjustments (consisting only
of normal recurring adjustments) which were necessary for a fair
presentation of the results of operations for such periods but should
not be considered an indication of results for a full year or any other
period.
Reclassifications: Certain items in the 1997 financial statements have
been reclassified to conform with the 1998 presentation.
Note 2 - SECURITIES
The Company classifies securities into held to maturity and available
for sale categories. Held-to-maturity securities are those which the
Company has the positive intent and ability to hold to maturity and are
reported at amortized cost. Available-for-sale securities are those the
Company may decide to sell if needed for liquidity, asset-liability
management or other reasons. Available-for-sale securities are reported
at fair value, with unrealized gains and losses, if applicable,
included as a separate component of equity, net of tax.
The Company's portfolios of securities held to maturity and available
for sale consist of securities acquired to meet the Company's
regulatory liquidity requirement and anticipated near term cash funding
requirements. Securities in these portfolios are U.S. Government and
federal agency securities, securities issued by states and political
subdivisions and corporate securities. The mortgage-backed and related
securities portfolio consist of issues from FHLMC, GNMA, FNMA, and
other collateralized mortgage obligations with contractual maturities
ranging from one to 25 years. The remaining securities held to maturity
are primarily due in one to five years. Approximately 89% of the
combined securities portfolio consists of fixed rate instruments while
the remainder consists of floating rate instruments.
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(Continued)
6
<PAGE> 9
THREE RIVERS FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nine months ended March 31, 1998
(Unaudited)
NOTE 3 - DEPOSITS AND LOANS
The Company is principally engaged in the business of accepting deposits
from the general public through a variety of deposit programs and investing
those funds by originating loans secured by one-to-four family residential
properties located in its market area, loans secured by multi-family
residential and commercial properties, construction loans, second mortgage
loans on single-family residences, home equity lines of credit and consumer
loans, both secured and unsecured, including loans secured by savings
accounts. The company sells most long-term fixed rate mortgage loans to the
secondary market.
NOTE 4 - BORROWINGS
Borrowings at March 31, 1998 consisted of advances from the Federal Home
Loan Bank (FHLB) of Indianapolis, bearing rates from 5.19% to 6.17%. The
loans are collateralized by the Company's single family whole loans, U.S.
Government and federal agency securities and mortgage-backed securities.
Adjustable rate advances included $3.3 million indexed to the 3 month LIBOR
rate which adjust quarterly. Adjustable rate advances have maturities
ranging from three months to five years. The remaining balance of $18.4
million of advances are fixed rate, fixed term, with maturities from two
months to five years. The Company also maintains a $500,000 line of credit
with the FHLB which adjusts daily to the FHLB's posted rate for these
borrowings. The line of credit did not have a balance at March 31, 1998.
.
NOTE 5 - EARNINGS PER COMMON SHARE
Basic and diluted earnings per share are computed under a new accounting
standard effective in the quarter ended December 31, 1997. All prior
amounts have been restated to be comparable. Basic earnings per share is
based on net income divided by the weighted average number of shares
outstanding during the period. Diluted earnings per share shows the
dilultive effect of additional common shares issuable under stock options.
The weighted number of shares outstanding for the calculation of basic
earnings per share for the three months ended March 31, 1998 was 770,956.
- --------------------------------------------------------------------------------
(Continued)
7
<PAGE> 10
THREE RIVERS FINANCIAL CORPORATION
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Nine months ended March 31, 1998
(Unaudited)
Note 6 - REGULATORY CAPITAL REQUIREMENTS
Savings institutions must meet three separate minimum capital-to-asset
requirements. The following table summarizes, as of March 31, 1998, the
capital requirements for the Bank and the Bank's actual capital ratios.
As of March 31, 1998, the Bank substantially exceeded all current
regulatory capital requirements.
<TABLE>
<CAPTION>
Regulatory
Capital Requirement Actual Capital
------------------- --------------
(Dollars in thousands)
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Risk-based capital $ 4,261 8.00% $ 11,839 22.23%
Core capital 2,931 3.00% 11,367 11.63%
Tangible capital 1,466 1.50% 11,367 11.63%
</TABLE>
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8
<PAGE> 11
THREE RIVERS FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Three Rivers Financial Corporation (the "Company") was incorporated under the
laws of the State of Delaware for the purpose of becoming the savings and loan
holding company of First Savings Bank, a Federal Savings Bank (the "Bank") in
connection with the Bank's conversion from a federally chartered mutual savings
bank to a federally chartered stock savings bank (the "Conversion"). On August
23, 1995, the Conversion was completed and the Bank became a wholly-owned
subsidiary of the Company. The following discussion compares the financial
condition of the Company at March 31, 1998 to June 30, 1997 and the results of
operations for the three-month period ended March 31, 1998 and the nine-month
period ended March 31, 1998 with the same periods ended March 31, 1997. This
discussion should be read in conjunction with the financial statements and
footnotes included herein.
FINANCIAL CONDITION
March 31, 1998 compared to June 30, 1997.
The Company's total assets increased $3.0 million from $95.1 million at June 30,
1997 to $98.1 at March 31, 1998. The increases were due primarily to increases
in cash and cash equivalents, interest earning time deposits with other
financial institutions, loans receivable, and premises and equipment. Such
increases were partially offset by decreases in securities held to maturity and
foreclosed real estate.
Cash and cash equivalents increased $3.0 million or 40.54% from $7.4 million at
June 30, 1997 to $10.4 million at March 31, 1998. This was due to management's
decision not to invest in securities currently available in the market due to
unfavorable rates and maturities.
Loans receivable increased $1.6 million or 2.59% from $61.8 million at June 30,
1997 to $63.4 million at March 31, 1998 due to the normal level of demand. These
increases were funded by increases in FHLB Advances along with increases in cash
and cash equivalents.
Interest earning time deposits with other financial institutions increased
$500,000 or 14.29% from $3.5 million at June 30, 1997 to $4.0 million at March
31, 1998. The purchase of time deposits was in lieu of investing in longer term
securities.
Premises and equipment increased $1.0 million or 71.43% from $1.4 million at
June 30, 1997 to $2.4 million at March 31, 1998. This increase is the result of
the purchase of a building in Howe, Indiana for a branch office and the purchase
of land and the construction of a branch office in Middlebury, Indiana. The Howe
office was opened on February 16, 1998 and it is anticipated that the Middlebury
office will open at the end of May, 1998.
Investments in securitites held to maturity decreased $2.8 million or 15.64%
from $17.9 million at June 30, 1997 to $15.1 million at March 31, 1998.
Securities consisted of U.S. Government and federal agency securities,
mortgage-backed and related securities and other collateralized obligations.
This decrease was due to the amortization of payments on mortgage-backed
securities and other collateralized obligations.
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(Continued)
9
<PAGE> 12
THREE RIVERS FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Foreclosed real estate decreased $354,000 or 85.30% from $415,000 at June 30,
1997 to $61,000 at March 31, 1998. This decrease was due to the sale of a large
commercial property which had been carried on the books at $370,000. The net
proceeds of the sale were $384,000 which resulted in a gain on sale of $14,000.
Total borrowed funds increased $1.4 million or 6.90% from $20.3 million at June
30, 1997 to $21.7 million at March 31, 1998. This increase was partially due to
an incease in demand for loans, along with the opportunity to lock in longer
term funds at favorable rates . Borrowed funds consist of advances from the
Federal Home Loan Bank ("FHLB") with both fixed and variable interest rates and
stated maturities ranging through 2002.
Total deposits increased $900,000 to $61.2 million from $60.3 million for the
nine month period ended March 31, 1998. The largest increase by deposit
categories was in demand and statement savings accounts which was partially
offset by a decrease in time deposits. Management believes that customers are
seeking higher yielding investment alternatives due to the low interest rate
environment.
RESULTS OF OPERATIONS
Net income for the three months ended March 31, 1998 was $187,600 compared to
$180,400 for the three months ended March 31, 1997. Increases in interest income
of $144,000, or 8.67%, were offset by increases in interest expense of $96,000,
or 11.11%. Increases in noninterest expense of $81,000, or 12.70% were primarily
the result of additional expenses for the installation of data processing
equipment and promotional expenses for the opening of our Branch Office in Howe,
Indiana. These increases were partially offset by increases in non-interest
income of $39,000. With the opening of our new offices in Howe and Middlebury,
Indiana, the Company anticipates flat earnings for the next year.
Net income for the nine months ended March 31, 1998 was $615,000 compared to
$290,000 for the nine months ended March 31, 1997, an increase of $325,000 or
112.07%. This was primarily a result of the BIF/SAIF Regulatory Relief Package
signed by President Clinton on September 30, 1996. The impact of this
legislation on the Company's noninterest expense was approximately $411,000
pretax for the nine month period ended March 31, 1997.
In addition to the BIF/SAIF special assessment, net income for the nine months
ended March 31, 1998 as compared to the same period in 1997 was impacted by an
increase in total interest income of $389,000 or 7.74% to $5,413,000 from
$5,024,000 for the nine month period ended March 31, 1997. This increase was
offset by a $350,000 increase in interest expense or 13.87% to $2,874,000 from
$2,524,000 for the corresponding period ended March 31, 1997.
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(Continued)
10
<PAGE> 13
THREE RIVERS FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Non-interest income increased $39,000 or 30.95% from $126,000 to $165,000 for
the three month period ended March 31, 1998. Increases in gains on sale of loans
of $30,000, service charges on deposit accounts of $7,000, and other income of
$5,000 were partially offset by decreases in loan servicing fees of $4,000.
Non-interest income increased $96,000 or 25.26% to $476,000 from $380,000 for
the nine month period ended March 31, 1998 compared to the same period ended
March 31, 1997. Increases in gains on sale of loans of $54,000, net gains on
sales of foreclosed real estate of $3,000, service charges on deposit accounts
of $6,000 and other income of $35,000 was partially offset by a decrease in loan
servicing fees in the amount of $4,000. The increase in other income is
basically due to the Company's purchase of life insurance policies for executive
officers which produced additional income due to the increase in the cash
surrender value of the policies.
Non-interest expense increased $81,000 or 12.70% to $719,000 from $638,000 for
the three month period ended March 31, 1998 compared to the same period ended
March 31, 1997. Increases in compensation expense of $16,000, occupany and
equipment of $21,000, advertising of $8,000, data processing expense of $28,000,
professional fees of $6,000 and printing, postage and supplies of $16,000 were
partially offset by decreases of $14,000 in other expense. The increases were
primarily the result of the opening of our new branch in Howe, Indiana. The
decrease in other expense was partially a result of the elimination of the
Michigan Intangibles tax.
Non-interest expense decreased $300,000 or 12.50% to $2.1 million from $2.4
million for the nine month period ended March 31, 1998 compared to the same
period ended March 31, 1997. This was primarily a result of the decrease in the
SAIF premium which was offset by increases in compensation and benefits of
$62,000, occupancy and equipment of $25,000, advertising and promotion of
$8,000, data processing of $28,000, professional fees of $13,000 and printing
and postage of $17,000.
.
Income tax expense is higher for the three and nine-month periods ended March
31, 1998 due to the increase in income as compared to the same periods in 1997.
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for loan losses
based on management's quarterly asset classification review, and evaluation of
the risk inherent in its loan portfolio and changes in the nature and volume of
its loan activity. Such evaluation considers, among other matters, the estimated
value of the underlying collateral, economic conditions, cash flow analysis,
historical loan loss experience, discussions held with delinquent borrowers and
other factors that warrant recognition in providing for an adequate allowance
for loan losses. As a result of this review process, management recorded a
provision for loan losses in the amount of $15,000 for the three-month period
ended March 31, 1998. While management believes the current
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(continued)
11
<PAGE> 14
THREE RIVERS FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
allowance for loan losses is adequate, management anticipates growth in the loan
portfolio and will therefore, continue to make additional provisions to the
allowance for loan losses. No assurance can be given that amounts allocated to
the allowance for loan losses will be adequate to cover actual losses that may
occur.
Total non-performing assets increased $152,000 at March 31, 1998 to $723,000 as
compared to $571,000 at June 30, 1997. The ratio of non-performing assets to
total assets at March 31, 1998 was 0.73% compared to 0.60% at June 30, 1997.
Included in non-performing assets at March 31, 1998 were non-performing
mortgages of $652,000, foreclosed real estate of $61,000 and other repossessed
assets of $10,000. Management has considered a commercial loan participation,
classified as a non-accrual loan at March 31, 1998 as impaired. At March 31,
1998, the Bank's balance was $472,000. Collection under the original terms of
the agreement is in doubt and, thus, management has classified the loan as
impaired at March 31, 1998. This $472,000 is included in non-performing
mortgages listed above.
OTS regulations require that the Bank periodically review and classify assets
pursuant to the classification of assets policy set forth in its regulations.
Based on management's review of its assets as of March 31, 1998, $582,000 of
assets were classified as substandard, $-0- as doubtful, $-0- as loss, and
$473,600 as special mention. At the time of the quarterly review, an asset
classification listing is prepared, in conformity with the OTS regulations, and
a detailed report is presented to the Board.
LIQUIDITY AND CAPITAL RESOURCES
The Bank's primary sources of funds are deposits, borrowings from the FHLB and
interest payments on loans. While scheduled repayments of loans are a predicable
source of funds, deposit flows and mortgage prepayments are greatly influenced
by general interest rates, economic conditions and competition. The Bank has
managed this fluctuation in its source of funds through borrowings from the
FHLB.
Under OTS regulations, a savings association is required to maintain an average
daily balance of liquid assets (including cash, certain time deposits and
savings accounts, bankers' acceptances, certain government obligations, and
certain other investments) in each calendar quarter of not less than 4% of
either (1) its liquidity base (consisting of certain net withdrawable accounts
plus short-term borrowings) as of the end of the preceding calendar quarter, or
(2) the average daily balance of its liquidity base during the preceding
quarter. This liquidity requirement may be changed from time to time by the OTS
to any amount between 4.0% and 10.0%, depending upon certain factors, including
economic conditions and savings flows of all savings associations. For the
quarter ended March 31, 1998, the Bank maintained a liquidity ratio of 31.43%.
The Bank anticipates that it will have sufficient funds available to meet
current commitments.
- --------------------------------------------------------------------------------
12
<PAGE> 15
THREE RIVERS FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NEW ACCOUNTING PRONOUNCEMENTS
- -----------------------------
Recent pronouncements by the Financial Accounting Standards Board (FASB) may
have an impact on financial statements issued in this and subsequent periods.
These standards include the following Statements of Accounting Financial
Standards (SFAS):
SFAS No. 128, "Earnings Per Share," revises the accounting requirements for
calculating earnings per share. Basic earnings per share for the quarter ended
December 31, 1997 and later will be calculated solely on the average common
shares outstanding. Diluted earnings per share will reflect the potential
dilution of stock options and other common stock equivalents. All prior
calculations will be restated to be comparable to new methods.
SFAS No.129, "Disclosure of Information about Capital Structure," establishes
standards for disclosing information about capital structure, including
pertinent rights and privileges of various securities outstanding. This
statement is effective for financial statements for periods ending after
December 15, 1997.
SFAS No. 130, "Reporting Comprehensive Income" establishes standards for
reporting and display of comprehensive income and its components (revenue,
expenses, gains and losses) in a full set of general-purpose financial
statements. This Statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. Income tax effects must also be shown. This
Statement is effective for fiscal years beginning after December 15, 1997.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" establishes standards for the way public business enterprises
report information about operating segments in annual financial statements and
requires those enterprises report selected information about operating segments
in interim financial reports issued to shareholders. It also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. This statement is effective for financial statements for
periods beginning after December 15, 1997.
Management has determined that the impact of the adoption of these statements on
the financial position or results of operations will not be material.
- --------------------------------------------------------------------------------
13
<PAGE> 16
PART II
ITEM 1 - LEGAL PROCEEDINGS
None
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
On February 18, 1998, the Company declared a cash dividend of $0.11 per
share which was payable on April 1, 1998, to stockholders of record on
March 6, 1998.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-k
None
- ------------------------------------------------------------------------------
14
<PAGE> 17
THREE RIVERS FINANCIAL CORPORATION
THREE RIVERS, MICHIGAN
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.
Three Rivers Financial Corporation
Date: May 13, 1998 /s/ G. Richard Gatton
-------------------------------------
G. Richard Gatton
President and Chief Executive Officer
Date: May 13, 1998 /s/ Martha Romig
-------------------------------------
Martha Romig
Senior Vice-President, Treasurer and
Chief Financial Officer
- ------------------------------------------------------------------------------
15
<PAGE> 18
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SCHEDULE
10-QSB DATED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 3,071,596
<INT-BEARING-DEPOSITS> 7,348,485
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 15,060,083
<INVESTMENTS-MARKET> 15,178,729
<LOANS> 63,435,161
<ALLOWANCE> 473,979
<TOTAL-ASSETS> 98,063,286
<DEPOSITS> 61,224,856
<SHORT-TERM> 316,648
<LIABILITIES-OTHER> 1,192,525
<LONG-TERM> 21,743,737
0
0
<COMMON> 8,319
<OTHER-SE> 13,253,579
<TOTAL-LIABILITIES-AND-EQUITY> 98,063,286
<INTEREST-LOAN> 4,162,304
<INTEREST-INVEST> 871,412
<INTEREST-OTHER> 378,835
<INTEREST-TOTAL> 5,412,551
<INTEREST-DEPOSIT> 2,006,724
<INTEREST-EXPENSE> 2,874,025
<INTEREST-INCOME-NET> 2,538,526
<LOAN-LOSSES> 45,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 252,318
<INCOME-PRETAX> 884,852
<INCOME-PRE-EXTRAORDINARY> 884,852
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 615,252
<EPS-PRIMARY> .82
<EPS-DILUTED> .80
<YIELD-ACTUAL> 7.93
<LOANS-NON> 723,159
<LOANS-PAST> 20,581
<LOANS-TROUBLED> 181,264
<LOANS-PROBLEM> 473,600
<ALLOWANCE-OPEN> 487,184
<CHARGE-OFFS> 67,801
<RECOVERIES> 9,596
<ALLOWANCE-CLOSE> 473,979
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 473,979
</TABLE>
