<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 December 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
-------- --------
Commission File No. 1-13826
-------
THREE RIVERS FINANCIAL CORPORATION
----------------------------------
(Exact name of registrant as specified in its charter)
Delaware 38-3235452
-------- ----------
(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
--------------
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:
792,734 shares of Common Stock, Par Value $.01 per share as of February 12,
1999
Transitional Small Business Disclosure Format (check one): Yes ; No X
--- ---
<PAGE> 2
THREE RIVERS FINANCIAL CORPORATION
THREE RIVERS, MICHIGAN
FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited) 1
December 31, and June 30, 1998
Consolidated Statements of Income (Unaudited)
Three and six months ended December 31, 1998 and 1997 2
Condensed Consolidated Statement of Changes in Shareholders'
Equity (Unaudited)
Six months ended December 31, 1998 4
Consolidated Statements of Cash Flows (Unaudited)
Six months ended December 31, 1998 and 1997 5
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 12
PART II. OTHER INFORMATION
Items 1- 6 17
Signatures 18
</TABLE>
<PAGE> 3
THREE RIVERS FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from other financial institutions $ 3,328,768 $ 2,768,730
Interest-earning deposits with other financial institutions 6,395,918 9,512,347
--------------- ----------------
Cash and cash equivalents 9,724,686 12,281,077
Interest-earning time deposits with other financial institutions 4,253,960 4,064,980
Securities available for sale 688,403 725,036
Securities held to maturity (fair value: $13,281,565 at
December 31, 1998, and $14,388,034 at June 30, 1998) 13,134,298 14,277,573
Loans receivable, net of allowance for loan losses of
$503,243 at December 31, 1998 and $489,361 at June 30, 1998 65,600,965 62,119,886
Federal Home Loan Bank stock 1,162,200 1,162,200
Accrued interest receivable 377,171 467,691
Premises and equipment, net 2,584,967 2,626,114
Foreclosed real estate - 29,408
Investment in low-income housing partnership 398,748 423,742
Other assets 887,183 707,175
--------------- ----------------
$ 98,812,581 $ 98,884,882
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Demand deposits $ 3,620,563 $ 2,879,180
Savings and NOW deposits 23,414,000 21,507,839
Other time deposits 38,666,434 37,128,630
--------------- ----------------
Total deposits 65,700,997 61,515,649
Borrowed funds 20,156,961 22,743,737
Advances from borrowers for taxes and insurance 116,738 531,757
Due to low-income housing partnership 323,622 323,622
Accrued expenses and other liabilities 771,959 1,082,265
--------------- ----------------
Total liabilities 87,070,277 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; 792,734 and
790,698 shares issued and 792,734 and 783,313 outstanding at December 31,
1998 and June 30, 1998,
respectively 7,927 7,907
Additional paid-in-capital 6,765,857 6,861,182
Retained earnings, substantially restricted 5,713,213 6,607,642
Net unrealized appreciation on securities available for sale,
net of tax of $1,164 at December 31, 1998 2,260 -
--------------- ----------------
12,489,257 13,476,731
Unearned Employee Stock Ownership Plan shares (491,582) (491,582)
Unearned Recognition and Retention Plan shares (255,371) (199,055)
Treasury stock, at cost (7,385 shares at June 30, 1998) - (98,242)
--------------- ----------------
Total shareholders' equity 11,742,304 12,687,852
--------------- ----------------
$ 98,812,581 $ 98,884,882
=============== ================
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral
part of these consolidated financial statements.
1.
<PAGE> 4
THREE RIVERS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Three months and six months ended December 31, 1998 and 1997
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income
Loans receivable $1,389,474 $1,398,070 $2,758,159 $2,772,195
Securities 250,992 299,500 506,955 603,250
Other interest and dividend income 178,055 105,085 377,374 231,986
---------- ---------- ---------- ----------
Total interest income 1,818,521 1,802,655 3,642,488 3,607,431
Interest expense
Deposits 704,896 673,106 1,401,565 1,350,040
Borrowed funds 287,475 275,254 600,447 564,234
---------- ---------- ---------- ----------
Total interest expense 992,371 948,360 2,002,012 1,914,274
---------- ---------- ---------- ----------
NET INTEREST INCOME 826,150 854,295 1,640,476 1,693,157
Provision for loan losses 15,000 15,000 30,000 30,000
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 811,150 839,295 1,610,476 1,663,157
---------- ---------- ---------- ----------
Noninterest income
Loan servicing 32,924 31,110 61,005 61,413
Net gains on sales of loans 75,636 26,385 111,348 48,249
Net gains on sales of foreclosed real estate 130 399 130 20,038
Service charges on deposit accounts 68,039 56,159 133,421 109,819
Other 37,864 33,649 82,485 71,492
---------- ---------- ---------- ----------
214,593 147,702 388,389 311,011
Noninterest expense
Compensation and benefits 392,952 348,184 786,971 679,919
Occupancy and equipment 143,217 113,317 291,470 219,039
SAIF deposit insurance premium 8,975 9,570 18,300 18,945
Advertising and promotion 25,083 32,662 58,369 59,802
Data processing 67,942 51,851 129,318 102,987
Professional fees 27,564 28,231 52,797 60,458
Printing, postage, stationery, and supplies 37,712 26,392 65,592 50,864
Other 105,195 92,934 202,711 173,620
---------- ---------- ---------- ----------
808,640 703,141 1,605,528 1,365,634
INCOME BEFORE FEDERAL INCOME TAXES 217,103 283,856 393,337 608,534
Federal income tax expense 44,211 81,250 76,911 180,850
---------- ---------- ---------- ----------
NET INCOME 172,892 202,606 316,426 427,684
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
2.
<PAGE> 5
THREE RIVERS FINANCIAL CORPORATION
Three months and six months ended December 31, 1998 and 1997
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Other comprehensive income
Net unrealized gains (losses) on securities
for sale $ (830) $ -- $ 3,424 $ --
Tax effect 282 -- (1,164) --
Total other comprehensive income
(loss) (548) -- 2,260 --
--------- ----------- --------- -----------
Comprehensive income $ 172,344 $ 202,606 $ 318,686 $ 427,684
========= =========== ========= ===========
Basic earnings per share $ .25 $ .26 $ .45 $ .56
========= =========== ========= ===========
Diluted earnings per share $ .25 $ .26 $ .44 $ .56
========= =========== ========= ===========
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral
part of these consolidated financial statements.
3.
<PAGE> 6
THREE RIVERS FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY
Six months ended December 31, 1998
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Balance at June 30, 1998 $ 12,687,852
Net income 316,426
Effect of shares committed to be released by ESOP,
at market value 21,132
Cash dividends declared on common stock @ $0.225 per share (183,850)
Cash paid for fractional shares of 10% stock dividends (492)
Amortization of 3,151 RRP shares 41,926
Retirement of 70,000 shares of common stock (1,142,950)
Net change in unrealized gains on securities
arising during period 2,260
Balance at December 31, 1998 $ 11,742,304
---------------
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral
part of these consolidated financial statements.
4.
<PAGE> 7
THREE RIVERS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended December 31, 1998 and 1997
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six months ended
December 31,
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 316,426 $ 427,684
Adjustments to reconcile net income to net cash
provided from operating activities
Depreciation of premises and equipment 153,064 105,294
Net accretion on securities held to maturity (31,782) (41,146)
Net amortization on securities available for sale 13 --
Provision for loan losses 30,000 30,000
RRP expense 41,926 35,255
ESOP expense 21,132 27,106
Loans originated for sale (4,745,885) (1,878,925)
Proceeds from sale of loans held for sale 4,857,233 1,927,175
Net gains on sales of loans (111,348) (48,250)
Net gains on sales of foreclosed real estate (130) (19,639)
Change in assets and liabilities
Accrued interest receivable and other assets (89,488) (89,560)
Accrued expenses and other liabilities (311,470) (78,246)
---------- ----------
Net cash provided by operating activities 129,691 396,748
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in interest-earning time deposits with
Other financial institutions (188,980) (495,000)
Net increase in loans (2,460,935) (780,298)
Purchase of loans (1,050,014) --
Net purchases of premises and equipment (111,917) (753,035)
Purchases of securities held to maturity (2,788,469) (1,000,000)
Proceeds from maturities of securities held to maturity 1,500,000 1,000,000
Paydowns on mortgage-backed and related securities
held to maturity 2,463,526 2,046,164
Paydowns on mortgage-backed and related securities
available for sale 40,044 --
Purchase of Federal Home Loan Bank stock -- (69,900)
Proceeds from sale of foreclosed real estate 29,408 402,863
Net change in investment in low-income housing partnership 24,994 24,687
---------- ----------
Net cash provided by (used in) investing activities (2,542,343) 375,481
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
5.
<PAGE> 8
THREE RIVERS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended December 31, 1998 and 1997
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six months ended
December 31,
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits $ 4,185,348 $ 1,002,122
Net change in advances from borrowers for taxes
And insurance (415,019) (289,995)
Proceeds from borrowed funds 2,000,000 6,750,000
Repayment of borrowed funds (4,586,776) (5,350,550)
Cash dividends paid (184,342) (166,385)
Purchase of common stock (1,142,950) --
------------ ------------
Net cash provided by (used in) financing activities (143,749) 1,945,192
------------ ------------
Net change in cash and cash equivalents (2,556,391) 2,717,421
Cash and cash equivalents at beginning of period 12,281,077 7,437,993
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,724,686 $ 10,155,414
============ ============
Supplemental disclosures of cash flow information
Cash paid for
Interest $ 2,017,082 $ 1,920,475
Income taxes 248,437 --
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral
part of these consolidated financial statements.
6.
<PAGE> 9
THREE RIVERS FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Six months ended December 31, 1998
- --------------------------------------------------------------------------------
NOTE 1 - BASIS OF PRESENTATION
Nature of Operations: The consolidated financial statements include the accounts
of Three Rivers Financial Corporation ("the Company"), First Savings Bank ("the
Bank") and Alpha Financial, Inc. ("Alpha"). All significant intercompany
balances and transactions have been eliminated in consolidation. The Company is
a savings and loan holding company located in Three Rivers, Michigan and owns
all of the outstanding stock of the Bank. Alpha is a wholly-owned subsidiary of
the Bank. The Company was organized in April 1995 for the purpose of owning all
of the outstanding stock of the Bank. Financial information presented herein,
prior to the organization of the Company reflects the consolidated financial
position, results of operations and cash flows of the Bank and Alpha.
The Bank grants residential and commercial real estate and consumer loans,
accepts deposits and engages in mortgage banking activities. Substantially all
loans are secured by specific items of collateral including residences, business
assets and consumer assets. The Bank services its customers, which are primarily
located in southwestern Michigan and the central portion of northern Indiana,
through its main office in Three Rivers and five other offices located in its
market area. The primary business of Alpha is to own and receive the dividend
income from stock holdings in MMLIC Life Insurance Company.
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 principles for complete presentation of financial statements. In the
opinion of management, the consolidated financial statements contain all
adjustments necessary to present fairly the consolidated balance sheets of Three
Rivers Financial Corporation and its subsidiary First Savings Bank as of
December 31, 1998 and June 30, 1998, and the consolidated statements of income
for the three months and six months ended December 31, 1998 and 1997, the
condensed consolidated statements of changes in shareholders' equity for the six
months ended December 31, 1998 and the consolidated statements of cash flows for
the six months ended December 31, 1998 and 1997. All significant intercompany
transactions and balances are eliminated in consolidation. The income reported
for the six months ended December 31, 1998 is not necessarily indicative of the
results that may be expected for the full year.
- --------------------------------------------------------------------------------
(Continued)
7.
<PAGE> 10
THREE RIVERS FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Six months ended December 31, 1998
- --------------------------------------------------------------------------------
NOTE 2 - BORROWINGS
Borrowings at December 31, 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 $13.8 million indexed to the 3 month LIBOR rate which adjust
quarterly. Adjustable rate advances have maturities ranging two months to nine
years. The remaining balance of $6.4 million of advances are fixed rate, fixed
term, with maturities from two months to three 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 December
31, 1998.
NOTE 3 - EARNINGS PER COMMON SHARE
Earnings per common share is computed under the provisions of Statement of
Financial Accounting Standards (SFAS) No. 128, Earnings Per Share, which was
adopted retroactively by the Company at the beginning of the second quarter of
1997. Adoption of the Statement did not change the EPS amounts previously
reported by the Company for prior annual or quarterly periods. At March 31, 1998
and 1997, the Company had average unallocated ESOP shares and average unearned
recognition and retention plan shares, which are excluded from the weighted
average number of shares outstanding used to calculate the earnings per share.
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 dilutive effect of additional common stock equivalents.
A reconciliation of the numerators and denominators of the basic earnings per
common share and earnings per common share assuming dilution computations for
the periods ended December 31, 1998 and 1997 is presented below.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Net income available to common
shareholders $172,892 $202,606 $316,426 $427,684
Weighted average common shares
outstanding 692,645 751,777 706,476 751,257
Basic earnings per share $ .25 $ .26 $ .45 $ .56
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
8.
<PAGE> 11
THREE RIVERS FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Six months ended December 31, 1998
- --------------------------------------------------------------------------------
NOTE 3 - EARNINGS PER COMMON SHARE (Continued)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
EARNINGS PER SHARE ASSUMING DILUTION
Net income available to common
shareholders $172,892 $202,606 $316,426 $427,684
Weighted average common shares
outstanding 692,645 751,777 706,476 751,257
Add: Dilutive effects of assumed
exercises
Stock options 1,549 13,185 7,162 11,309
Recognition and retention plans 5,469 3,384 3,940 1,692
-------- -------- -------- --------
Weighted average common and
dilutive potential common
shares outstanding 699,663 768,346 717,578 764,258
======== ======== ======== ========
Earnings per share assuming dilution $ .25 $ .26 $ .44 $ .56
</TABLE>
STOCK 4 - STOCK OPTIONS
The Company's Board of Directors has adopted a stock option plan. Under the
terms of this plan, options for up to 85,962 shares of the Company's common
stock may be granted to key management employees and directors of the Company
and its subsidiaries. The exercise price of the options is determined at the
time of grant by an administrative committee appointed by the Board of
Directors.
SFAS No. 123, which became effective for 1997, requires disclosures for
companies that do not adopt its fair value accounting method for stock-based
employee compensation. Accordingly, the following proforma information presents
net loss and loss per common share had the fair value been used to measure
compensation cost for stock option plans. No compensation cost has been
recognized for the stock options.
The fair value of options granted during the six months ended December 31, 1998
and 1997 is estimated using the following weighted average information:
risk-free interest rate of 5.00% and 5.25%, expected life of 7 and 7 years,
expected volatility of stock price of .055 and .048, and expected dividends of
2.20% and 2.11% per year.
- --------------------------------------------------------------------------------
(Continued)
9.
<PAGE> 12
THREE RIVERS FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Six months ended December 31, 1998
- --------------------------------------------------------------------------------
STOCK 4 - STOCK OPTIONS (Continued)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net income as reported $ 316,426 $ 427,684
Proforma net income 308,788 421,634
Basic earnings per common share as reported $ .45 $ .56
Diluted earnings per common share as reported .44 .56
Proforma basic earnings per common share .44 .56
Proforma diluted earnings per common share .43 .55
</TABLE>
In future years, the proforma effect of not applying this standard is expected
to increase as additional options are granted.
Stock option plans are used to reward employees and provide them with an
additional equity interest. Options are issued for ten year periods with a five
year vesting period. Information about option grants follows:
<TABLE>
<CAPTION>
Weighted Weighted
Number of Average Average
Outstanding Exercise Exercise Fair Value
Options Price Price of Grants
------- ----- ----- ---------
<S> <C> <C> <C> <C>
Balance at June 30, 1995 - $ - $ -
Granted 58,500 13.25 13.25 $ 2.59
------------
Balance at June 30, 1996 58,000 13.25 13.25
------------
Balance at June 30, 1997 58,500 13.25 13.25
Granted 4,000 16.38 16.38 $ 2.82
------------
Balance at June 30, 1998 62,500 13.25 - 16.38 13.45
Granted 19,800 15.50 15.50 $ 2.44
Forfeited (3,250) 13.25
------------
Balance at December 31, 1998 79,050 13.25 - 16.38 13.97
</TABLE>
The weighed average remaining contractual life of options outstanding at
December 31, 1998 was approximately eight years. Stock options exercisable at
December 31, 1998 and 1997 totaled 22,900 and 11,050 at a weighted average
exercise price of $13.25 and $13.36.
- --------------------------------------------------------------------------------
(Continued)
10.
<PAGE> 13
THREE RIVERS FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Six months ended December 31, 1998
- --------------------------------------------------------------------------------
NOTE 5 - REGULATORY CAPITAL REQUIREMENTS
Savings institutions must meet three separate minimum capital-to-asset
requirements. The following table summarizes, as of December 31, 1998, the
capital requirements for the Bank and the Bank's actual capital ratios. As of
December 31, 1998, the Bank substantially exceeded all current regulatory
capital requirements.
<TABLE>
<CAPTION>
Regulatory
Capital Requirement Actual Capital
Amount Percent Amount Percent
(Dollars in thousands)
<S> <C> <C> <C> <C>
Risk-based capital $ 4,185 8.00% $ 11,309 21.62%
Core capital 2,964 3.00% 10,808 10.94%
Tangible capital 1,482 1.50% 10,808 10.94%
</TABLE>
- --------------------------------------------------------------------------------
11.
<PAGE> 14
ITEM 2: 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 December 31, 1998 to June 30, 1998 and the results
of operations for the three month and six month periods ended December 31, 1998
with the same periods ended December 31, 1997. This discussion should be read in
conjunction with the financial statements and footnotes included herein.
FINANCIAL CONDITION
December 31, 1998 compared to June 30, 1998.
The Company's total assets decreased $100,000 from $98.9 million at June 30,
1998 to $98.8 at December 31, 1998. Decreases were due primarily to decreases in
cash and cash equivalents, securities held to maturity, accrued interest
receivable, premises and equipment, foreclosed real estate and investment in
low-income housing partnership. These decreases were offset with increases in
interest earning-time deposits with other financial institutions, loans
receivable and other assets.
Cash and cash equivalents decreased $2.6 million or 21.l4% from $12.3 million at
June 30, 1998 to $9.7 million at December 31, 1998. This was due to an increase
in loan demand.
Interest-earning time deposits with other financial institutions increased
$200,000 or 4.88% from $4.1 million at June 30, 1998 to $4.3 million at December
31, 1998. The purchase of time deposits was in lieu of investing in longer term
securities in order to manage liquidity needs.
Loans receivable increased $3.5 million or 5.64% from $62.1 million at June 30,
1998 to $65.6 million at December 31, 1998 due to the higher level of demand for
loans in the market area. These increases were funded by increased deposits.
Securities decreased $1.2 million or 8.00% from $15 million at June 30, 1998 to
$13.8 million at December 31, 1998. Securities consisted of U.S. Government and
federal agency securities, mortgage-backed and related securities and other
collateralized obligations.
Total liabilities increased $900,000 from 86.2 million at June 30, 1998 to $87.1
million at December 31, 1998 due primarily to increases in deposits, which were
partially offset by decreases in FHLB advances, advances from borrowers for
taxes and insurance and accrued expenses and other liabilities.
- --------------------------------------------------------------------------------
(Continued)
12.
<PAGE> 15
Total borrowed funds decreased $2.5 million or 11.01% from $22.7 million at June
30, 1998 to $20.2 million at December 31, 1998. This decrease was the result of
repayment of maturing FHLB advances. Borrowed funds consist of FHLB advances
with both fixed and variable interest rates and stated maturities ranging
through 2008
Total deposits increased $4.2 million to $65.7 million for the six-month period
ended December 31, 1998. This increase was primarily the result of growth at 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 increases were in savings
and NOW deposits and time deposits.
Shareholders' equity decreased $1.0 million to $11.7 million for the six-month
period ended December 31, 1998. This is primarily the result of the repurchase
of stock totaling $1,143,000 and dividends paid in the amount of $184,000 offset
by net income of $316,000.
RESULTS OF OPERATIONS
Net income for the three months ended December 31, 1998 was $173,000 compared to
$203,000 for the three months ended December 30, 1997, a decrease of $30,000 or
14.78%. Increases in interest income of $16,000, or .89% were offset by
increases in interest expense of $44,000 or 4.64%. Increases in non-interest
expense were partially offset by increases in non-interest income, along with a
decrease in federal income tax expense. This decrease in federal income tax
expense was due to the decrease in income before Federal income tax expense.
Net income for the six months ended December 31, 1998 was $316,000 compared to
$428,000 for the six months ended December 31, 1997, a decrease of $112,000, or
26.17%. Interest income increased $35,000 or .97% to $3,642,000 from $3,607,000.
This increase was offset by an increase in interest expense of $88,000 or 4.60%
to $2,002,000 from $1,914,000.
Decreases in net income for the three and six months ended December 31, 1998
were primarily the result of increased operating expenses due to the opening of
the two new branches in Howe and Middlebury, Indiana, along with year 2000
expenses for data processing and personnel costs.
Non-interest income increased $67,000 from $148,000 to $215,000 for the three
month period ended December 31, 1998. Net gains on sales of loans, service
charges on deposit accounts and other income were offset by a decrease in gains
on sales of foreclosed real estate. The substantial increase in net gains on
sales of loans was due to the increased volume in sales of loans to the Federal
Home Loan Mortgage Company (FHLMC) resulting from the favorable interest rate
environment.
Non-interest income increased $77,000 or 24.76% to $388,000 from $311,000 for
the six month period ended December 31, 1998 compared to the same period ended
December 31, 1997. This was primarily due to the increased volume in sales of
loans, increases in service charges on deposit accounts, along with other
income. The other income consisted of increases in the cash surrender value of
insurance policies. These increases were offset by a decrease in the gains on
sales of foreclosed real estate.
- --------------------------------------------------------------------------------
(Continued)
13.
<PAGE> 16
Non-interest expense increased $106,000 or 15.08% to $809,000 from $703,000 for
the three month period ended December 31, 1998 compared to the same period ended
December 31, 1997. Increases were in compensation of $45,000 to $393,000 from
$348,000, occupancy and equipment of $30,000 to $143,000 from $113,000, data
processing of $16,000 to $68,000 from $52,000, printing and postage of $12,000
to $38,000 from $26,000 and other expense of $12,000 to $105,000 from $93,000.
These increases were partially offset by decreases in advertising and promotion
of $8,000 from $33,000 to $25,000 for the same period ended December 31, 1997.
Non-interest expense increased $240,000 or 17.57% to $1,606,000 from $l,366,000
for the six month period ended December 31, 1998 compared to the six month
period ended December 31, 1997. Increases in compensation expense of $107,000 to
$787,000 from $680,000 along with increases in occupancy and equipment of
$72,000 to $291,000 from $219,000, data processing expense of $26,000 to
$129,000 from $103,000, printing and postage of $15,000 to $66,000 from $51,000
and increases in other expense of $29,000 to $203,000 from $174,000 were
partially offset by a decrease in professional fees of $7,000 to $53,000 from
$60,000.
Federal income tax is lower for the three and six month period ended December
31, 1998 due to the decrease in income before Federal income tax expense as
compared to the same periods ended December 31, 1997.
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN
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 December 31, 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 $102,000 at December 31, 1998 to $580,000
as compared to $682,000 at June 30, 1998. The ratio of non-performing assets to
total assets at December 31, 1998 was 0.59% compared to 0.69% at June 30, 1998.
Included in non-performing assets at December 31, 1998 were consumer loans in
the amount of $52,000, non-performing mortgages of $508,000 and other
repossessed assets of $20,000.
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 December 31, 1998, $528,368 of
assets were classified as substandard, $-0- as doubtful $-0- as loss, and
$331,162 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.
- --------------------------------------------------------------------------------
(Continued)
14.
<PAGE> 17
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 December 31, 1998, the Bank maintained a liquidity ratio of
28.17%. The Bank anticipates that it will have sufficient funds available to
meet current commitments.
NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 130, Reporting Comprehensive Income. Comprehensive income consists of
net income and other comprehensive income. Other comprehensive income includes
the net change in unrealized appreciation (depreciation) on securities available
for sale, net of tax which is also recognized as a separate component of
shareholders' equity. The accounting standard that requires reporting
comprehensive income first applied as of July 1, 1998, with prior information
restated to be comparable.
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. This
pronouncement is not expected to have a material impact on the consolidated
financial position or results of operations.
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 Banking Activities,"
which establishes accounting and reporting standards for certain activities of
mortgage banking enterprises and other enterprises that 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.
- --------------------------------------------------------------------------------
(Continued)
15.
<PAGE> 18
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 May 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 to be in excess of $300,000. 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.
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. It is expected that
in a worse case scenario, the Company would operate on a manual basis. The
Company is in the processing of developing a formal contingency plan which will
be in place by March 31, 1999.
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
- --------------------------------------------------------------------------------
16.
<PAGE> 19
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
On October 28, 1998, the Company held its annual meeting of
stockholders. At the meeting Phillip Halverson was reelected to a
three-year term on the Company's Board of Directors. The term of office
of directors Larry A. Clark, G. Richard Gatton, G. Verglea Gotfryd,
Thomas O. Monroe, Sr., and Stephen R. Olson continued after the
meeting. The only other matter voted on at the annual meeting was the
appointment of Crowe, Chizek and Company as the Company's independent
auditors for the year ending June 30, 1999. The voting on these matters
was as follows:
<TABLE>
<S> <C> <C> <C>
1. Election of Directors
Phillip Halverson For - 676,118 Withheld - 23,300
2. Appointment of Auditors For - 689,868 Against - 4,450 Abstentions - 5,100
</TABLE>
ITEM 5 - OTHER INFORMATION
On October 28, 1998, the Company declared a 10% stock dividend payable
to shareholders of record as of November 11, 1998, which was paid on
December 11, 1998. Cash was paid in lieu of fractional shares based on
the fair market value of the common stock on the record date.
On November 18, 1998, the Company declared a cash dividend of $0.115
per share which was payable on January 4, 1999, to stockholders of
record on December 14, 1998.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 - Financial Data Schedule
(b) Reports on Form 8-k
None
- --------------------------------------------------------------------------------
17.
<PAGE> 20
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: February 12, 1999 /s/ G. Richard Gatton
----------------------------------------
G. Richard Gatton
President and Chief Executive Officer
Date: February 12, 1999 /s/ Martha Romig
----------------------------------------
Martha Romig
Senior Vice-President, Treasurer and
Chief Financial Officer
- --------------------------------------------------------------------------------
18.
<PAGE> 21
Exhibit Index
-------------
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SCHEDULE
10QSB DATED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,328,768
<INT-BEARING-DEPOSITS> 6,395,918
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 688,403
<INVESTMENTS-CARRYING> 13,134,298
<INVESTMENTS-MARKET> 13,281,565
<LOANS> 65,600,965
<ALLOWANCE> 503,243
<TOTAL-ASSETS> 98,812,581
<DEPOSITS> 65,700,997
<SHORT-TERM> 116,738
<LIABILITIES-OTHER> 771,959
<LONG-TERM> 20,156,961
0
0
<COMMON> 7,927
<OTHER-SE> 11,734,377
<TOTAL-LIABILITIES-AND-EQUITY> 98,812,581
<INTEREST-LOAN> 2,758,159
<INTEREST-INVEST> 506,955
<INTEREST-OTHER> 377,374
<INTEREST-TOTAL> 3,642,488
<INTEREST-DEPOSIT> 1,401,565
<INTEREST-EXPENSE> 2,002,012
<INTEREST-INCOME-NET> 1,640,476
<LOAN-LOSSES> 30,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 202,711
<INCOME-PRETAX> 393,337
<INCOME-PRE-EXTRAORDINARY> 393,337
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 316,426
<EPS-PRIMARY> .45
<EPS-DILUTED> .44
<YIELD-ACTUAL> 7.98
<LOANS-NON> 559,617
<LOANS-PAST> 289,943
<LOANS-TROUBLED> 174,671
<LOANS-PROBLEM> 331,162
<ALLOWANCE-OPEN> 489,361
<CHARGE-OFFS> 17,118
<RECOVERIES> 1,000
<ALLOWANCE-CLOSE> 503,243
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 503,243
</TABLE>
