<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 September 30, 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
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THREE RIVERS FINANCIAL CORPORATION
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(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
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(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:
720,698 shares of Common Stock, Par Value $.01 per share as of November 10,
1998
Transitional Small Business Disclosure Format (check one): Yes ; No X
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<PAGE> 2
THREE RIVERS FINANCIAL CORPORATION
THREE RIVERS, MICHIGAN
FORM 10QSB
INDEX
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements of Three Rivers Financial Corporation (Unaudited)
Condensed Consolidated Balance Sheets as of September 30, 1998
and June 30, 1998 1
Condensed Consolidated Statements of Income for the three months
ended September 30, 1998 and 1997 2
Condensed Consolidated Statement of Changes in Shareholders' Equity 3
Consolidated Statements of Cash Flows for the three months ended
September 30, 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 15
Signatures 16
</TABLE>
<PAGE> 3
THREE RIVERS FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 1998 and June 30, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
September 30, June 30,
1998 1998
(unaudited)
ASSETS
<S> <C> <C>
Cash and due from other financial institutions $ 2,361,475 $ 2,768,730
Interest-earning deposits with other financial institutions 11,155,301 9,512,347
------------ ------------
Cash and cash equivalents 13,516,776 12,281,077
Interest-earning time deposits with other financial institutions 4,253,960 4,064,980
Securities available for sale 721,070 725,036
Securities held to maturity (fair value: $13,371,070 at
September 30, 1998, and $14,388,034 at June 30, 1998) 13,120,499 14,277,573
Loans receivable, net of allowance for loan losses of
$502,884 at September 30, 1998, and $489,361 at June 30, 1998 62,809,074 62,119,886
Federal Home Loan Bank Stock 1,162,200 1,162,200
Accrued interest receivable 399,310 467,691
Premises and equipment, net 2,614,532 2,626,114
Foreclosed real estate 0 29,408
Investment in low-income housing partnership 411,245 423,742
Other assets 715,314 707,175
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Total assets $ 99,723,980 $ 98,884,882
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Demand deposits $ 3,537,594 $ 2,879,180
Savings and NOW deposits 21,919,942 21,507,839
Other time deposits 38,820,926 37,128,630
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Total deposits 64,278,462 61,515,649
Borrowed funds 21,156,961 22,743,737
Advances from borrowers for taxes and insurance 403,909 531,757
Due to low-income housing partnership 323,622 323,622
Accrued expenses and other liabilities 859,501 1,082,265
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Total liabilities 87,022,455 86,197,030
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; 785,698 and
790,698 shares issued and 778,313 and 783,313
outstanding at September 30, 1998 and June 30, 1998, respectively 7,857 7,907
Additional paid-in-capital 6,791,000 6,861,182
Retained earnings, substantially restricted 6,667,346 6,607,642
Net unrealized appreciation on securities available for sale,
net of tax of $1,447 at September 30, 1998 2,808 -
------------ ------------
13,469,011 13,476,731
Unearned Employee Stock Ownership Plan shares (491,582) (491,582)
Unearned Recognition and Retention Plan shares (177,662) (199,055)
Treasury stock, at cost (7,385 shares) (98,242) (98,242)
------------ ------------
Total shareholders' equity 12,701,525 12,687,852
------------ ------------
Total liabilities and shareholders' equity $ 99,723,980 $ 98,884,882
============ ============
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The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
1
<PAGE> 4
THREE RIVERS FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months ended September 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1998 1997
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<S> <C> <C>
Interest income
Loans Receivable $1,368,685 $1,374,125
Securities 255,963 303,750
Other interest and dividend income 199,319 126,901
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Total interest income 1,823,967 1,804,776
Interest expense
Deposits 696,669 676,934
Borrowed funds 312,972 288,980
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Total interest expense 1,009,641 965,914
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NET INTEREST INCOME 814,326 838,862
Provision for loan losses 15,000 15,000
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NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 799,326 823,862
Noninterest income
Loan servicing 28,081 30,303
Net gains on sales of loans 35,712 21,864
Net gains on sales of foreclosed real estate 0 19,639
Service charges on deposit accounts 65,382 53,660
Other income 44,621 37,843
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173,796 163,309
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Noninterest expense
Compensation and benefits 394,019 331,735
Occupancy and equipment 148,253 105,722
SAIF deposit insurance premium 9,325 9,375
Advertising and promotion 33,286 27,140
Data processing 61,376 51,136
Professional fees 25,233 32,227
Printing, postage, stationery, and supplies 27,880 24,472
Other 97,516 80,686
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796,888 662,493
INCOME BEFORE INCOME TAXES 176,234 324,678
Federal income tax expense 32,700 99,600
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NET INCOME $ 143,534 $ 225,078
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Other comprehensive income, net of tax:
Change in unrealized gains on securities 2,808 0
COMPREHENSIVE INCOME $ 146,342 $ 225,078
========== ==========
Basic earnings per share $ 0.20 $ 0.30
========== ==========
Diluted earnings per share $ 0.20 $ 0.30
========== ==========
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
2
<PAGE> 5
THREE RIVERS FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Three months ended September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
Balance at June 30, 1998 $ 12,687,852
Net income 143,534
Effect of shares committed to be released by ESOP, 12,568
at market value
Cash dividends declared on common stock @ $0.11 per share (83,830)
Amortization of 1,608 RRP shares 21,393
Retirement of 5000 shares of common stock (82,800)
Net change in unrealized gains on securities
arising during period 2,808
------------
Balance at September 30, 1998 $ 12,701,525
------------
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
3
<PAGE> 6
THREE RIVERS FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended September 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 143,534 $ 225,078
Adjustments to reconcile net income to
net cash provided from operating activities
Depreciation of premises and equipment 75,776 51,301
Net accretion on securities (14,838) (21,265)
Provision for loan losses 15,000 15,000
RRP expense 21,393 17,295
ESOP expense 12,568 10,695
Loans originated for sale (2,095,115) (1,112,125)
Proceeds from sale of loans held for sale 2,130,827 1,133,989
Net gains on sales of loans (35,712) (21,864)
Net gains on sales of foreclosed real estate - (19,639)
Change in
Accrued interest receivable and other assets 89,650 (21,380)
Accrued expenses and other liabilities (224,211) (38,435)
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Net cash provided by operating activities 118,872 218,650
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in interest-earning time
deposits with other financial institutions (188,980) (297,000)
Net decrease (increase) in loans 295,588 (1,753,544)
Purchases of loans (999,776) -
Net purchases of premises and equipment (64,194) (359,343)
Purchases of mortgage-backed and related securities
held to maturity (1,316,243) (1,000,000)
Proceeds from maturities of securities held to maturity 1,500,000 500,000
Paydowns on mortgage-backed and related securities
held to maturity 988,157 1,053,130
Paydowns on securities available for sale 8,219 -
Proceeds from sale of foreclosed real estate - 402,863
Net change in investment in low-income housing partnership 12,497 12,344
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Net cash provided by (used in) investing activities 235,268 (1,441,550)
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</TABLE>
(Continued)
4
<PAGE> 7
THREE RIVERS FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended September 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
1998 1997
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<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits $ 2,762,813 $ 534,220
Net change in advances from borrowers for taxes
and insurance (127,848) 21,179
Proceeds from borrowed funds - 1,750,000
Repayments of borrowed funds (1,586,776) (3,350,550)
Cash dividends paid (83,830) (83,192)
Purchase of common stock (82,800) -
------------ -----------
Net cash provided by (used in) financing activities 881,559 (1,128,343)
------------ -----------
Net change in cash and cash equivalents 1,235,699 (2,351,243)
Cash and cash equivalents at beginning of period 12,281,077 7,437,993
------------ -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 13,516,776 $ 5,086,750
============ ===========
Supplemental disclosures of cash flow information
Cash paid for
Interest $ 993,152 $ 947,231
Income taxes 79,375 -
- ----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
5
<PAGE> 8
THREE RIVERS FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three months ended September 30, 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 three months ended September 30, 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. The information for the year ended June 30, 1998
is derived from the consolidated statements for the year ended June 30,
1998.
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 83% of the combined securities portfolio consists of
fixed rate instruments while the remainder consists of floating rate
securities.
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(Continued)
6
<PAGE> 9
THREE RIVERS FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three months ended September 30, 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 September 30, 1998 consisted of advances from the Federal
Home Loan Bank (FHLB) of Indianapolis, bearing rates from 5.01% to 6.14%.
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 $14.8 million indexed to the
3 month LIBOR rate which adjust quarterly. Adjustable rate advances have
maturities ranging one month to nine years. The remaining balance of $6.4
million of advances are fixed rate, fixed term, with maturities from two
months to two 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 September 30,
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 September 30, 1998 was
720,807.
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(Continued)
7
<PAGE> 10
THREE RIVERS FINANCIAL CORPORATION
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Three Months ended September 30, 1998
(Unaudited)
Note 6 - REGULATORY CAPITAL REQUIREMENTS
Savings institutions must meet three separate minimum capital-to-asset
requirements. The following table summarizes, as of September 30, 1998,
the capital requirements for the Bank and the Bank's actual capital
ratios. As of September 30, 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 $ 4,136 8.00% $ 11,070 21.41%
Core capital 2,984 3.00% 10,569 10.62%
Tangible capital 1,492 1.50% 10,569 10.62%
</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 September 30, 1998 to June 30, 1998 and the results
of operations for the three-month period ended September 30, 1998 and the same
period ended September 30, 1997. This discussion should be read in conjunction
with the financial statements and footnotes included herein.
FINANCIAL CONDITION
September 30, 1998 compared to June 30, 1998.
The Company's total assets increased $800,000 from $98.9 million at June 30,
1998 to $99.7 at September 30, 1998. The increases were due primarily to
increases in cash and cash equivalents, interest earning time deposits with
other financial institutions, and loans receivable. Such increases were
partially offset by decreases in securities held to maturity and accrued
interest receivable.
Cash and cash equivalents increased $1.2 million or 9.76% from $12.3 million at
June 30, 1998 to $13.5 million at September 30, 1998. This was due to
management's decision not to invest in securities currently available in the
market due to unfavorable rates and maturities.
Interest-earning time deposits with other financial institutions increased
$200,000 or 4.88% at September 30, 1998 from $4.1 million to $4.3 million at
September 30, 1998. The purchase of time deposits was in lieu of investing in
longer term securities.
Loans receivable increased $700,000 or 1.13% from $62.1 million at June 30, 1998
to $62.8 million at September 30, 1998 due to the normal level of demand. These
increases were funded by increases in deposits.
Securities decreased $1.2 million or 8.00% from $15 million at June 30, 1998 to
$13.8 million at September 30, 1998. Securities consisted of U.S. Government and
federal agency securities, mortgage backed and related securities and other
collateralized obligations.
Total liabilities increased $825,000 from 86.2 million at June 30, 1998 to $87.0
million at September 30, 1998 due primarily to increases in deposits, which were
partially offset by decreases in FHLB advances and accrued expenses and other
liabilities.
Total borrowed funds decreased $1.5 million or 6.61% from $22.7 million at June
30, 1998 to $21.2 million at September 30, 1998. This decrease was the result of
payments of maturing FHLB advances. Borrowed funds consist of FHLB advances with
both fixed and variable interest rates and stated maturities ranging through
2008.
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(Continued)
9
<PAGE> 12
THREE RIVERS FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Total deposits increased $2.8 million to $64.3 million for the three month
period ended September 30, 1998. This increase was primarily the result of the
opening of the two new branches in Howe and Middlebury, Indiana. The Howe,
Indiana office opened in February 1998 and Middlebury, Indiana in May 1998.
There were increases in all deposit categories, but the primary increase was in
time deposits.
Shareholders' equity remained at $12.7 million for the three month period ended
September 30, 1998. This is primarily the result of the repurchase of stock
totaling $83,000 and dividends paid in the amount of $87,000, offset by net
income of $144,000.
RESULTS OF OPERATIONS
Net income for the three months ended September 30, 1998 was $144,000 compared
to $225,000 for the three months ended September 30, 1997, a decrease of $81,000
or 36%. This decrease was primarily the result of the increased operating
expense due to the opening of the two new branches. Increases in interest
expense of $44,000 or 4.55%, were partially offset by increases in interest
income of $19,000, or 1.05%.
Non-interest income increased $11,000 to $174,000 from $163,000 for the three
months ended September 30, 1998 compared to the same period ended September 30,
1997. This was due to increases in the gains on sales of loans, increases in
service charges on deposit accounts and other income.
Non-interest expense increased $135,000 to $797,000 from $662,000 for the three
months ended September 30, 1998 compared to the corresponding period in 1997.
The majority of the increases were reflected in compensation and benefits,
occupancy and equipment and the advertising and promotion of our new offices.
Increases in data processing and printing along with stationery and supplies are
also a result of the new offices. Increases in other expense were primarily the
result of an unanticipated loan expense. These increases were partially offset
by a decrease in professional fees.
Due to the decrease in pre-tax income of $149,000 to $176,000 for the period
ended September 30, 1998 as compared to pre-tax income of $325,000 for the same
period ended September 30, 1997, income tax expense decreased by $67,000.
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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-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 September 30, 1998. While management believes the current 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 the amounts allocated to the allowance
for loan losses will be adequate to cover actual losses that may occur.
Total non-performing assets decreased $157,000 at September 30, 1998 to $525,000
as compared to $682,000 at June 30, 1998. The ratio of non-performing assets to
total assets at September 30, 1998 was 0.53% compared to 0.69% at June 30, 1998.
Included in non-performing assets at September 30, 1998 were consumer loans in
the amount of $52,000, non-performing mortgages of $468,000 and other
repossessed assets of $5,000.
At June 30, 1998, the Bank had approximately $17,000 in consumer credit loans
considered by management to be potential problem loans that were not reflected
in the above totals of non-performing loans. As to these loans, information
about possible credit problems of borrowers has caused management to have
concerns about the ability of the borrowers to comply with present loan
repayment terms. These loans are subject to increased management attention and
their classification is reviewed on a quarterly basis.
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 September 30, 1998, $534,000 of
assets were classified as substandard, $-0- as doubtful, $-0- as loss, and
$231,000 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.
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(continued)
11
<PAGE> 14
THREE RIVERS FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 September 30, 1998, the Bank maintained a liquidity ratio of
31.70%. The Bank anticipates that it will have sufficient funds available to
meet current commitments.
NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information, will require future reporting of additional information related to
material business segments beginning with the year ended June 30, 1999.
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, will
require all derivatives to be recognized at fair value as either assets or
liabilities in the consolidated balance sheets beginning with the quarter ended
September 30, 1999. Changes in fair value of derivatives not designated as
hedging instruments are to be recognized currently in earnings. Gains or losses
on derivatives designated as hedging instruments are either to be recognized
currently in earnings or are to be recognized as a component of other
comprehensive income, depending on the intended use of the derivatives and the
resulting designations. The Company does not believe adoption of this new
standard will have a material impact on its consolidated financial position or
results of operation.
SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise." SFAS No. 134 amends SFAS No 65, "Accounting for Certain Mortgage
Banking Activities," which establishes accounting and reporting standards for
certain activities of mortgage banking enterprises and other enterprises that
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(Continued)
12
<PAGE> 15
THREE RIVERS FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
conduct operations that are substantially similar. SFAS No. 134 requires that
after the securitization of mortgage loans held for sale, the resulting
mortgage-backed securities and other retained interests should be classified in
accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," based on the company's ability and intent to sell or hold
those investments. SFAS No. 134 is effective for the first fiscal quarter
beginning after December 15, 1998. Management of the Bank has not yet determined
whether the adoption of SFAS No. 134 will have a material impact on the Bank's
results of operations or financial position when adopted.
YEAR 2000
In May 1997, the Federal Financial Institutions Examinations Council issued an
interagency statement to the chief executive officers of all federally
supervised financial institutions regarding year 2000 project management
awareness. It is expected that unless financial institutions address the
technology issues relating to the coming of the year 2000, there will be major
disruptions in the operations of financial institutions. The statement provides
guidance to the financial institutions, providers of data services, and all
examining personnel of the federal banking agencies regarding the year 2000
problem. The federal banking agencies intend to conduct year 2000 compliance
examinations, and the failure to implement a year 2000 program may be seen by
the federal banking agencies as an unsafe and unsound banking practice. The OTS
has recently established an examination procedure which contains three
categories of ratings: "Satisfactory," "Needs Improvement," and
"Unsatisfactory." Institutions that receive a year 2000 rating of Unsatisfactory
may be subject to formal enforcement action, supervisory agreements, cease and
desist orders, civil money penalties, or the appointment of a conservator. In
addition, federal banking agencies will be taking into account year 2000
compliance programs when analyzing applications and may deny an application
based on year 2000 related issues.
The Company has completed its assessment of Year 2000 issues, developed a plan,
and arranged for the required resources to complete the necessary remediation
and testing. As part of its efforts to ensure compliance with the Year 2000, the
Company has signed a contract with FiServ, Milwaukee, to convert to a new
processing system in July 1999. At this time, computer hardware will also be
replaced.
The Company will utilize both internal and external resources to reprogram or
replace, and test hardware and software for the Year 2000 compliance. The
Company plans to complete changes and testing of critical systems by July 31,
1999. Testing of non-critical applications will continue throughout 1999 and
will be completed prior to any impact on operating systems. The total costs of
the Year 2000 project are estimated at $225,000. The Company will incur
remediation and testing costs through the Year 2000, but does not anticipate
that material incremental costs will be incurred in any single period.
- --------------------------------------------------------------------------------
(Continued)
13
<PAGE> 16
THREE RIVERS FINANCIAL CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND ANALYSIS
YEAR 2000 (CONTINUED)
The Company has initiated formal communications with all of its critical vendors
and service providers to determine the extent to which the Company is vulnerable
to any failure of those third parties to remedy their own Year 2000 issues.
However, there can be no guarantee that the systems of other companies on which
the Company's systems rely will be remedied in a timely manner or that there
will be no adverse effect on the Company's systems. Critical companies include
power companies and telephone systems. Therefore, the Company could possibly be
negatively impacted to the extent that other entities not affiliated with the
Company are unsuccessful in properly addressing this issue.
The costs of the project and the date on which the Company plans to complete the
Year 2000 modifications are based upon management's best estimates. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar circumstances.
- --------------------------------------------------------------------------------
14
<PAGE> 17
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 August 19, 1998, the Company declared a cash dividend of $0.11 per
share which was payable on October 1, 1998, to stockholders of record
on September 14, 1998.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-k
None
- --------------------------------------------------------------------------------
15
<PAGE> 18
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: November 11, 1998 /s/ G. Richard Gatton
-------------------------------------
G. Richard Gatton
President and Chief Executive Officer
Date: November 11, 1998 /s/ Martha Romig
-------------------------------------
Martha Romig
Senior Vice-President, Treasurer and
Chief Financial Officer
- --------------------------------------------------------------------------------
16
<PAGE> 19
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
10QSB DATED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,361,475
<INT-BEARING-DEPOSITS> 11,155,301
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 721,070
<INVESTMENTS-CARRYING> 13,120,499
<INVESTMENTS-MARKET> 13,371,070
<LOANS> 62,809,074
<ALLOWANCE> 502,884
<TOTAL-ASSETS> 99,723,980
<DEPOSITS> 64,278,462
<SHORT-TERM> 403,909
<LIABILITIES-OTHER> 859,501
<LONG-TERM> 21,156,961
0
0
<COMMON> 7,857
<OTHER-SE> 12,693,668
<TOTAL-LIABILITIES-AND-EQUITY> 99,723,980
<INTEREST-LOAN> 1,368,685
<INTEREST-INVEST> 255,963
<INTEREST-OTHER> 199,319
<INTEREST-TOTAL> 1,823,967
<INTEREST-DEPOSIT> 696,669
<INTEREST-EXPENSE> 1,009,641
<INTEREST-INCOME-NET> 814,326
<LOAN-LOSSES> 15,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 97,516
<INCOME-PRETAX> 176,234
<INCOME-PRE-EXTRAORDINARY> 176,234
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 143,534
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
<YIELD-ACTUAL> 7.83
<LOANS-NON> 520,818
<LOANS-PAST> 39,837
<LOANS-TROUBLED> 209,249
<LOANS-PROBLEM> 231,435
<ALLOWANCE-OPEN> 489,361
<CHARGE-OFFS> 2,132
<RECOVERIES> 655
<ALLOWANCE-CLOSE> 502,884
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 502,884
</TABLE>
