<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, 1999
-----------------
( ) 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:
702,734 shares of Common Stock, Par Value $.01 per share as of February
7, 2000
Transitional Small Business Disclosure Format (check one): Yes ; No X
-- --
<PAGE> 2
THREE RIVERS FINANCIAL CORPORATION
THREE RIVERS, MICHIGAN
FORM 10-QSB
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited)
December 31, 1999 and June 30, 1999 1
Consolidated Statements of Income (Unaudited)
Three and six months ended December 31, 1999 and 1998 2
Condensed Consolidated Statement of Changes in Shareholders'
Equity (Unaudited)
Six months ended December 31, 1999 4
Consolidated Statements of Cash Flows (Unaudited)
Six months ended December 31, 1999 and 1998 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 16
Signatures 17
</TABLE>
<PAGE> 3
THREE RIVERS FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and June 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
---- ----
(unaudited)
<S> <C> <C>
ASSETS
Cash and due from other financial institutions $ 3,453,817 $ 3,439,860
Interest-earning deposits with other financial institutions 1,555,932 4,526,169
------------- --------------
Cash and cash equivalents 5,009,749 7,966,029
Interest-earning time deposits in other financial institutions 3,957,945 4,154,960
Securities available for sale 1,878,069 1,771,920
Securities held to maturity (fair value: $11,889,624 at
December 31, 1999 and $12,239,450 at June 30, 1999) 11,953,001 12,240,083
Loans receivable, net of allowance for loan losses of
$552,361 at December 31, 1999 and $519,687 at June 30, 1999 72,790,077 68,705,967
Federal Home Loan Bank Stock 1,479,200 1,162,200
Accrued interest receivable 512,994 481,286
Premises and equipment, net 2,611,470 2,739,937
Investment in low-income housing partnership 348,760 373,754
Other assets 974,195 809,395
------------- --------------
Total assets $ 101,515,460 $ 100,405,531
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Demand deposits $ 4,167,042 $ 4,025,494
Savings and NOW deposits 23,781,684 24,045,015
Time deposits 36,065,730 39,089,857
------------- --------------
Total deposits 64,014,456 67,160,366
Federal Home Loan Bank advances 25,582,205 20,656,961
Advance payments by borrowers for taxes and insurance 117,124 463,129
Due to low-income housing partnership 253,058 253,058
Accrued expenses and other liabilities 590,929 1,082,957
------------- --------------
Total liabilities 90,557,772 89,616,471
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;
702,734 shares issued and outstanding at
December 31, 1999 and June 30, 1999 respectively 7,027 7,027
Additional paid-in-capital 5,580,967 5,563,848
Retained earnings 5,967,777 5,851,942
Accumulated other comprehensive income, net of tax of
($4,739) at December 31, 1999 and ($443) at June 30, 1999 (9,199) (860)
------------- --------------
11,546,572 11,421,957
Unearned Employee Stock Ownership Plan shares (421,538) (421,538)
Unearned Recognition and Retention Plan shares (167,346) (211,359)
------------- --------------
Total shareholders' equity 10,957,688 10,789,060
------------- --------------
Total liabilities and shareholders' equity $ 101,515,460 $ 100,405,531
============= ==============
</TABLE>
- --------------------------------------------------------------------------------
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 months and six months ended December 31, 1999 and 1998
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December December December December
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Interest income
Loans Receivable $ 1,515,979 $ 1,389,474 $ 3,013,937 $ 2,758,159
Securities 227,393 250,992 444,123 506,955
Other interest-earning assets 123,510 178,055 263,081 377,374
----------- ----------- ----------- -----------
Total interest income 1,866,882 1,818,521 3,721,141 3,642,488
Interest expense
Deposits 666,256 704,896 1,343,582 1,401,565
Borrowed funds 337,423 287,475 639,700 600,447
----------- ----------- ----------- -----------
Total interest expense 1,003,679 992,371 1,983,282 2,002,012
----------- ----------- ----------- -----------
NET INTEREST INCOME 863,203 826,150 1,737,859 1,640,476
Provision for loan losses 15,000 15,000 30,000 30,000
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 848,203 811,150 1,707,859 1,610,476
Noninterest income
Loan Servicing 33,893 32,924 69,958 61,005
Net gains on sales of loans 14,745 75,636 28,335 111,348
Service charges on deposit accounts 72,931 68,039 145,473 133,421
Other 26,869 37,994 64,361 82,615
----------- ----------- ----------- -----------
148,438 214,593 308,127 388,389
Noninterest expense
Compensation and benefits 417,894 392,952 832,457 786,971
Occupancy and equipment 149,425 143,217 312,029 291,470
SAIF deposit insurance premium 9,910 8,975 19,368 18,300
Advertising and promotion 26,890 25,083 57,238 58,369
Data processing 58,696 67,942 117,277 129,318
Professional fees 42,211 27,564 92,136 52,797
Printing, postage, stationery, and supplies 30,186 37,712 54,091 65,592
Other 91,039 105,195 172,812 202,711
----------- ----------- ----------- -----------
826,251 808,640 1,657,408 1,605,528
----------- ----------- ----------- -----------
INCOME BEFORE FEDERAL INCOME TAXES 170,390 217,103 358,578 393,337
Federal income tax expense 51,800 44,211 88,409 76,911
----------- ----------- ----------- -----------
NET INCOME $ 118,590 $ 172,892 $ 270,169 $ 316,426
=========== =========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
2.
<PAGE> 5
THREE RIVERS FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (continued)
Three months and six months ended December 31, 1999 and 1998
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Other comprehensive income
Net unrealized gains (losses) on securities
available for sale (17,098) (830) (12,635) 3,424
Tax effects 5,813 282 4,296 (1,164)
--------- ------------- -------------- --------------
Total gain/loss other comprehensive income (11,285) (548) (8,339) $2,260
--------- ------------- -------------- --------------
Comprehensive income $107,305 $172,344 $261,830 $318,686
========= ============= ============== ==============
Basis earnings per share $0.18 $0.25 0.42 $0.45
========= ============= ============= ==============
Diluted earnings per share $0.18 $0.25 0.42 $0.44
========= ============= ============== ==============
</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, 1999
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Balance at June 30, 1999 $10,789,060
Net income 270,169
Effect of shares committed to be released by ESOP, 17,119
at market value
Cash dividends declared on common stock @ $0.23 per share (154,334)
Amortization of RRP shares 44,013
Net change in unrealized loss on securities
available for sale, net of taxes (8,339)
------------
Balance at December 31, 1999 $10,957,688
============
</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, 1999 and 1998
(Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $ 270,169 $ 316,426
Net income
Adjustments to reconcile net income to
net cash provided by operating activities 169,172 153,064
Depreciation of premises and equipment (14,098) (31,769)
Net accretion of securities 30,000 30,000
Provision for loan losses 44,013 41,926
RRP expense 17,119 21,132
ESOP expense (1,593,738) (4,745,885)
Loans originated for sale 1,622,073 4,857,233
Proceeds from sales of loans (28,335) (111,348)
Net gains on sales of loans
Change in (196,508) (89,488)
Accrued interest receivable and other assets (487,732) (311,600)
Accrued expenses and other liabilities -------------- ---------------
(167,865) 129,691
Net cash provided by (used in) operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in interest-earning time $ 197,015 $ (188,980)
deposits with other financial institutions (4,114,110) (3,510,949)
Net change in loans (40,705) (111,917)
Net purchases of premises and equipment
Securities available for sale: (492,345) -
Purchases 365,872 40,044
Paydowns
Securities held to maturity: (1,412,699) (2,788,469)
Purchases - 1,500,000
Calls and maturities 1,721,568 2,463,526
Paydowns (317,000) -
Purchase of Federal Home Loan Bank stock - 29,408
Proceeds from sale of other real estate owned 24,994 24,994
Net investment in low-income housing partnership ------------------ ---------------
(4,067,410) (2,542,343)
Net cash used in investing activities
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
5.
<PAGE> 8
THREE RIVERS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended December 31, 1999 and 1998
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits $ (3,145,910) $ 4,185,348
Net change in advances from borrowers for taxes
and insurance (346,005) (415,019)
Proceeds from FHLB advances 10,750,000 2,000,000
Repayments of FHLB advances (5,824,756) (4,586,776)
Cash dividends paid (154,334) (184,342)
Purchase of common stock - (1,142,950)
---------------- ----------------
Net cash provided by (used in) financing activities 1,278,995 (143,739)
---------------- ----------------
Net change in cash and cash equivalents (2,956,280) (2,556,391)
Cash and cash equivalents at beginning of period 7,966,029 12,281,077
---------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,009,749 $ 9,724,686
================ ================
Supplemental disclosures of cash flow information
Cash paid for
Interest on deposits, advances and other
borrowings $ 1,993,779 $ 2,017,082
Income taxes 90,000 248,437
</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, 1999
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"). 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.
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, 1999 and June 30, 1999, and the consolidated statements of income
for the three months and six months ended December 31, 1999 and 1998 and the
consolidated statements of cash flows for the six months ended December 31, 1999
and 1998. All significant intercompany transactions and balances are eliminated
in consolidation. The income reported for the three and six months ended
December 31, 1999 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, 1999
NOTE 2- BORROWINGS
Borrowings at December 31, 1999 consisted of advances from the Federal Home Loan
Bank (FHLB) of Indianapolis, bearing rates from 4.53% to 6.23% at December 31,
1999. The borrowings are collateralized by the Company's single family whole
loans, U. S. Government, federal agency and mortgage-backed securities under a
blanket collateral agreement with the FHLB. Fixed rate advances include $11.1
million with maturities ranging from one month to two years. Adjustable rate
advances consist of $5.5 million with maturities ranging from six months to
seven months. The adjustable rate advances are based on a rate indexed to the 3
month LIBOR rate which adjusts quarterly. The remaining $9 million of putable
advances consist of maturities ranging from 3 years to 9.2 years. For the
putable advances, the FHLB has the option to convert to an adjustable rate of
three-month LIBOR flat, adjusted quarterly.
NOTE 3 - EARNINGS PER COMMON SHARE
Basic earnings per share is based on net income divided by the weighted average
common shares outstanding. ESOP shares are considered outstanding as they are
committed to be released; unearned shares are not considered outstanding.
Recognition and Retention Plan ("RRP") shares are considered outstanding as they
vest. Diluted earnings per share further assumes issue of dilutive potential
common shares relating to outstanding stock options and unvested RRP shares. All
share and per share amounts have been retroactively adjusted for the October of
1998 10% stock dividend.
A reconciliation of the numerators and denominators of basic and dilutive
earnings per common share for the periods ended December 31, 1999 and 1998 is
presented below. All share and per share amounts have been retroactively
adjusted for the October 28, 1998 stock dividend.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Net income available to common $118,590 $172,892 $270,169 $316,426
shareholders -------- -------- -------- --------
Weighted average common shares 641,613 692,645 640,703 706,476
outstanding ------- ------- ------- -------
Basic earnings per share $ 0.18 $ .25 $ 0.42 $ 0.45
-------- ------- -------- --------
</TABLE>
(Continued)
8.
<PAGE> 11
THREE RIVERS FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Three months and six months ended December 31, 1999
NOTE 3 - EARNINGS PER COMMON SHARE (Continued)
<TABLE>
<CAPTION>
Three Months Ended Six Months ended
December 31, December 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
DILUTED EARNINGS PER SHARE
Net income available to common shareholders $ 118,590 $172,892 $ 270,169 $316,426
--------- -------- --------- --------
Weighted average common shares outstanding 641,613 692,645 640,703 706,476
Add: Dilutive effects of assumed exercises
Stock options 12,740 1,549 6,369 7,162
Recognition and retention plans 1,882 5,469 941 3,940
--------- -------- --------- --------
Weighted average common and dilutive
potential common shares outstanding 656,235 699,663 648,013 717,578
--------- -------- --------- --------
Diluted earnings per share $ 0.18 $ 0.25 $ 0.42 $ 0.44
--------- -------- --------- --------
</TABLE>
NOTE 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 94,558 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
income and earnings 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. No stock options were granted during the three
months and six months ended December 31, 1999 and 1998.
(Continued)
9.
<PAGE> 12
THREE RIVERS FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Six months ended December 31, 1999
<TABLE>
<CAPTION>
NOTE 4 - STOCK OPTIONS (Continued) Six Months Ended
December 31,
1999 1998
---- ----
<S> <C> <C>
Net income as reported $ 270,169 $ 316,426
Proforma net income 249,058 308,788
Basic earnings per common share as reported $ 0.42 $ 0.45
Diluted earnings per share as reported 0.42 0.44
Proforma basic earnings per common share 0.39 0.44
Proforma dilutive earnings per common share 0.38 0.43
</TABLE>
In future years, the proforma effect of not applying this standard is expected
to increase as additional options are granted.
The stock option plan is used to retain and reward directors and key 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, 1997 64,350 $12.05 $12.05
Granted 4,400 14.89 14.89 $ 2.56
-----
Balance at June 30, 1998 68,750 12.05-14.89 12.23
Granted 21,780 14.09 14.09 2.22
Forfeited (3,575) 12.05 12.05
-------
Balance at June 30, 1999 and
December 31, 1999 86,955 12.05-14.89 12.70
------
</TABLE>
The weighted average remaining contractual life of options outstanding at
December 31 , 1999 was approximately 7.0 years. Stock options exercisable at
December 31, 1999 and 1998 totaled 42,581 and 25,190 at a weighted average
exercise price of $12.38 and $12.15. All share and per share amounts have been
retroactively adjusted for the October 28, 1998 stock dividend.
(Continued)
10.
<PAGE> 13
THREE RIVERS FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Six months ended December 31, 1999
NOTE 5 - REGULATORY CAPITAL REQUIREMENTS
Savings institutions must meet three separate minimum capital-to-asset
requirements. The following table summarizes, as of December 31, 1999, the
capital requirements for the Bank and the Bank's actual capital ratios. As of
December 31, 1999, 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 $ 4,454 8.00% $ 10,752 19.31
Core capital $ 3,039 3.00% $ 10,200 10.07
Tangible capital $ 1,520 1.50% $ 10,200 10.07
</TABLE>
11.
<PAGE> 14
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 December 31, 1999 to June 30, 1999 and the results
of operations for the three-month and six month periods ended December 31, 1999
with the same periods ended December 31, 1998. This discussion should be read in
conjunction with the financial statements and footnotes included herein.
FINANCIAL CONDITION
December 31, 1999 compared to June 30, 1999
The Company's total assets increased $1.1 million to $101.5 million at December
31, 1999 from $100.4 million at June 30, 1999. The overall increase was due
primarily to increases in loans receivable, FHLB stock and other assets. These
increases were offset by decreases in cash and cash equivalents, interest
earning time deposits with other financial institutions, investment securities
and premises and equipment.
Loans receivable increased $4.1 million or 5.97% from $68.7 million at June 30,
1999 to $72.8 million at December 31, 1999. FHLB stock increased $300,000 or 25%
to $1.5 million at December 31, 1999 from $1.2 million at June 30, 1999. The
purchase of additional FHLB stock was due to the increase in FHLB advances.
Increases in loans receivable and FHLB stock were primarily funded by increases
in FHLB advances.
Other assets increased $165,000 to $974,000 at December 31, 1999 from $809,000
at June 30, 1999.
Cash and cash equivalents decreased $3.0 million or 37.5% from $8.0 million at
June 30, 1999 to $5.0 million at December 31, 1999. This was due primarily to
the increase in loan demand.
Interest-earning time deposits with other financial institutions decreased
$200,000 or 4.76% from $4.2 million at June 30, 1999 to $4.0 million at December
31, 1999. Maturing deposits were transferred to cash and cash equivalents.
Securities decreased $200,000 or 1.43% from $14.0 million at June 30, 1999 to
$13.8 million at December 31, 1999. Securities consist of U.S. Government and
federal agency securities, mortgage-backed and related securities and other
collateralized obligations.
Premises and equipment decreased $100,000 from $2.7 million at June 30, 1999 to
$2.6 million at December 31, 1999.
(Continued)
12.
<PAGE> 15
THREE RIVERS FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Total liabilities increased $1.0 million or 1.12% to $90.6 at December 31, 1999
from $89.6 at June 30, 1999. This was primarily due to a decrease in total
deposits which was offset by increases in FHLB advances.
Total borrowed funds increased $4.9 million or 23.67% from $20.7 million at June
30, 1999 to $25.6 million at December 31, 1999. This increase was the result of
increased loan demand along with decreases in total deposits. Borrowed funds
consist of FHLB advances with both fixed and variable interest rates and stated
maturities ranging through 2009.
Total deposits decreased $3.2 million to $64.0 million for the six-month period
ended December 31, 1999. This decrease was primarily in time deposits.
Management believes the balances have decreased as customers seek higher
yielding investment alternatives due to the low interest rate environment.
Shareholders' equity increased $200,000 to $11.0 million for the six-month
period ended December 31, 1999 from $10.8 million for the period ended June 30,
1999. This is due primarily to the net income for the six month period ended
December 31, 1999 which was partially offset by dividends paid.
RESULTS OF OPERATIONS
Net income for the three months ended December 31, 1999 was $119,000 compared to
$173,000 for the three months ended December 31, 1998, a decrease of $54,000 or
31.21%. Increases in interest income of $48,000 or 2.64% were offset by
increases in interest expense of $12,000 or 1.21%, increases in non-interest
expense, and increases in federal income tax along with decreases in
non-interest income.
Net income for the six months ended December 31, 1999 was $270,000 compared to
$316,000 for the six month period ended December 31, 1998, a decrease of
$46,000, or 14.56%. Interest income increased $79,000 or 2.17% to $3,721,000
from $3,642,000. The increase in interest income was primarily the result of the
increase in loan volume. Interest expense decreased $19,000 or .95% from
$2,002,000 to $1,983,000. The decrease in net income was due to decreases in
non-interest income and increases in non-interest expense.
Non-interest income decreased $67,000 from $215,000 to $148,000 for the three
month period ended December 31, 1999 compared to the same period ended December
31, 1998. This is primarily the result of decreases in sales of fixed rate loans
that are sold in the secondary market. Customers have chosen the five and seven
year adjustable loans which are kept in our current loan portfolio.
(Continued)
13.
<PAGE> 16
THREE RIVERS FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Non-interest income decreased $80,000 or 20.62% from $388,000 to $308,000 for
the six months ended December 31, 1999 compared to the same period ended
December 31, 1998. Decreases in gains on sales of loans and other income were
offset by increases in loan servicing fees, and service charges on deposit
accounts.
Non-interest expense increased $17,000 or 2.10% from $809,000 to $826,000 for
the three months period ended December 31, 1999 compared to the same period
ended December 30, 1998. Increases were in compensation and benefits of $25,000
or 6.36% to $418,000 from $393,000, occupancy and equipment $6,000 or 4.20% from
$143,000 to $149,000, and professional fees of $14,000 from $28,000 to $42,000.
These increases were partially offset by decreases in data processing expense of
$9,000, printing and postage of $8,000 and other non-interest expense of
$14,000.
Non-interest expense increased $51,000 or 3.18% from $l,606,000 to $1,657,000
for the six month period ended December 31, 1999 compared to the same period
ended December 31, 1998. Increases were in compensation expense of $45,000 or
5.72% from $787,000 to $832,000, occupancy and equipment of $21,000 from
$291,000 to $312,000, and professional fees of $39,000 from $53,000 to $92,000.
These increases were partially offset by decreases in data processing expense of
$12,000 from $129,000 to $117,000, printing and postage expense of $12,000 from
$66,000 to $54,000 and other expense of $30,000 from $203,000 to $173,000. The
primary increase in non-interest expense is the result of increased expenses for
the upcoming merger with Peoples Bancorp of Auburn (see Item #5 in Other
Information), along with additional expenses incurred for preparation for the
Year 2000.
Federal income tax is higher for the three and six months ended December 31,
1999 compared to the same periods in 1998 due to tax credits available in 1998.
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 December 31, 1999 and $30,000 for the six month period ended December 31,
1999. While management believes the current allowance for loan
(Continued)
14.
<PAGE> 17
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 $89,000 at December 31, 1999 to $535,000
compared to $624,000 at June 30, 1999. The ratio of non-performing assets to
total assets at December 31, 1999 was 0.53% compared to 0.62% at June 30, 1999.
Included in non-performing assets at December 31, 1999 were consumer loans in
the amount of $7,000, non-performing mortgages of $369,000 and real estate owned
and in foreclosure of $159,000.
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, 1999, $328,000 of
assets were classified as substandard, $-0- as doubtful, $-0- as loss, and
$166,000 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.
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
predictable 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 borrowing 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's 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, 1999, the Bank maintained a liquidity ratio of
18.14%. The Bank anticipates that it will have sufficient funds available to
meet current commitments.
YEAR 2000
The company began working on its Year 2000 project in 1997. A comprehensive
review was done to identify all systems that would be affected. New teller
software and hardware were purchased in order to upgrade our information systems
to a level that would allow us to compete in the 21st century. At the time of
this report, all systems appear to be working well and no year 2000 problems
have been encountered.
15.
<PAGE> 18
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 November 17, 1999, the Company declared a cash dividend of $0.115
per share which was payable on January 3, 2000, to stockholders of
record on December 15, 1999.
On September 21, 1999, Peoples Bancorp, headquartered in Auburn,
Indiana, and the Registrant jointly announced that they have signed a
definitive agreement providing for the merger of the Registrant with
and into Peoples Bancorp. Under the terms of the agreement, each
shareholder of the Registrant would receive in a tax-free exchange 1.08
shares of Peoples Bancorp common stock for each share of the
Registrant's common stock owned by such shareholder. The proposed
merger is subject to the approval of the shareholders of Peoples
Bancorp and of the Registrant at their annual meetings, and other
customary conditions. The parties contemplate that the merger will
become effective during the first quarter of 2000.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 - Financial Data Schedule
(b) Reports on Form 8-k
None
- -----------------------------------------------------------------------------
16.
<PAGE> 19
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 10, 2000 /s/ G. Richard Gatton
-------------------------------------
G. Richard Gatton
President and Chief Executive Officer
Date: February 10, 2000 /s/ Martha Romig
-------------------------------------
Martha Romig
Senior Vice-President, Treasurer and
Chief Financial Officer
- ------------------------------------------------------------------------------
17.
<PAGE> 20
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SCHEDULE
10QSB DATED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,453,817
<INT-BEARING-DEPOSITS> 1,555,932
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,878,069
<INVESTMENTS-CARRYING> 11,953,001
<INVESTMENTS-MARKET> 11,889,624
<LOANS> 72,790,077
<ALLOWANCE> 552,361
<TOTAL-ASSETS> 101,515,460
<DEPOSITS> 64,014,456
<SHORT-TERM> 117,124
<LIABILITIES-OTHER> 590,929
<LONG-TERM> 25,582,205
0
0
<COMMON> 7,027
<OTHER-SE> 10,950,661
<TOTAL-LIABILITIES-AND-EQUITY> 101,515,460
<INTEREST-LOAN> 3,013,937
<INTEREST-INVEST> 444,123
<INTEREST-OTHER> 263,081
<INTEREST-TOTAL> 3,721,141
<INTEREST-DEPOSIT> 1,343,582
<INTEREST-EXPENSE> 1,983,282
<INTEREST-INCOME-NET> 1,737,859
<LOAN-LOSSES> 30,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 172,812
<INCOME-PRETAX> 358,578
<INCOME-PRE-EXTRAORDINARY> 358,578
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 270,169
<EPS-BASIC> 0.42
<EPS-DILUTED> 0.42
<YIELD-ACTUAL> 7.95
<LOANS-NON> 196,225
<LOANS-PAST> 180,245
<LOANS-TROUBLED> 455,165
<LOANS-PROBLEM> 166,432
<ALLOWANCE-OPEN> 519,687
<CHARGE-OFFS> 2,808
<RECOVERIES> 5,482
<ALLOWANCE-CLOSE> 552,361
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 552,361
</TABLE>
