SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 1999
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OR
Commission file number: 0-22220
TRI-COUNTY BANCORP, INC.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
WYOMING 83-0304855
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(State or Other Jurisdiction of Incorporation or Organization) (I.R.S.
Employer ID No.)
2201 MAIN STREET, TORRINGTON, WY 82240
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(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code (307) 532-2111
---------------------------------
N/A
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(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
The number of shares outstanding of each of the issuer's classes of common stock
as of May 14, 1999.
Class: $.10 par value common stock Outstanding: 878,798 shares
Transitional Small Business Disclosure Format (check one):
Yes No X
-1-
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Financial
Condition as of March 31, 1999 (unaudited)
and December 31, 1998................................3
Condensed Consolidated Statements of Operations
for the Three Months Ended March 31, 1999
and 1998 (unaudited).................................4
Condensed Consolidated Statements of
Stockholder's Equity for the Three Months
Ended March 31, 1999 and 1998 (unaudited)............5
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1999
and 1998 (unaudited).................................6
Notes to Condensed Consolidated Financial Statements.7
Item 2. Management's Discussion and Analysis or Plan
of Operation.........................................9
PART II OTHER INFORMATION
Item 1. Legal Proceedings...................................15
Item 2. Changes in Securities...............................15
Item 3. Default Upon Senior Securities......................15
Item 4. Submissions of Matters to a Vote of Security
Holders.............................................15
Item 5. Other Information...................................15
Item 6. Exhibits and Reports on Form 8-K....................15
SIGNATURES...................................................16
-2-
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(unaudited)
March 31, December 31,
ASSETS 1999 1998
(unaudited)
------------- -------------
Cash and due from banks $ 822,646 $ 385,804
Interest-bearing deposits with banks 2,971,654 2,979,241
Securities available-for-sale, at fair value 28,445,873 28,727,466
Securities held-to-maturity, market value of
$4,796,021(1999) and $5,474,222(1998) 4,678,831 5,335,700
Loans held for sale, at market value 336,943 435,721
Loans receivable, net of allowance for loan losses of
$399,462 (1999) and $409,984 (1998) 43,462,851 42,054,222
Accrued interest receivable 549,030 450,017
Bank property and equipment 776,169 801,141
Other assets 11,592 138,685
------ -------
Total Assets $82,055,589 $81,307,997
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits $ 753,313 $ 690,177
Savings and NOW deposits 15,760,963 14,513,645
Time deposits 30,170,534 30,770,264
---------- ----------
Total Deposits 46,684,810 45,974,086
Advance from Federal Home Loan Bank 23,987,242 23,799,117
Accounts payable and accrued expenses 194,471 216,841
Advances by borrowers for taxes and insurance 163,900 110,167
Deferred income taxes 687,054 787,119
------- -------
Total Liabilities 71,717,477 70,887,330
---------- ----------
Stockholders' Equity
Preferred stock, $.10 par value, 5,000,000 shares
authorized, none issued -- --
Common stock, 10,000,000 share of $.10 par value
authorized, 1,520,425 (1999) and 1,520,425
(1998) shares issued 152,043 152,043
Additional paid in capital 7,339,861 7,319,578
Retained earnings - substantially restricted 9,361,841 9,260,742
Unearned compensation relating to Management Stock
Bonus Plan and ESOP (269,100) (284,050)
Unrealized gain/(loss) on securities
available-for-sale, net of tax 891,107 1,106,701
Treasury stock, 641,627 (1999) and 641,627 (1998)
shares, at cost (7,137,640) (7,134,347)
---------- ----------
Total Stockholders' Equity 10,338,112 10,420,667
---------- ----------
Total Liabilities and Stockholders' Equity $82,055,589 $81,307,997
=========== ===========
See notes to condensed consolidated financial statements.
-3-
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended
March 31,
1999 1998
----------- -----------
Interest Income
Loans $ 875,512 $ 857,653
Securities available-for-sale 441,994 562,098
Securities held-to-maturity 89,558 151,995
Other interest earning assets 26,052 16,983
------ ------
Total Interest Income 1,433,116 1,588,729
--------- ---------
Interest Expense
Deposits 489,300 510,683
Advances and other borrowings 323,145 397,388
------- -------
Total Interest Expense 812,445 908,071
------- -------
Net Interest Income 620,671 680,658
Provision for credit losses -- --
------- -------
Net Interest Income After Provision
for Credit Losses 620,671 680,658
------- -------
Non-interest Income
Gain on sale of loans 10,420 6,660
Gain(loss) on sale of available-for-sale
securities 3,696 --
Service charges on deposits 31,197 29,262
Other, net 5,235 4,474
----- -----
Total Non-interest Income 50,548 40,396
------ ------
Non-interest Expense
Compensation and benefits 205,574 209,463
Occupancy and equipment 83,164 80,426
Federal deposit insurance premium 6,752 7,470
Other, net 77,763 90,903
------ ------
Total Non-interest Expense 373,253 388,262
------- -------
Earnings Before Income Taxes 297,966 332,792
Income taxes 100,200 101,000
------- -------
Net Earnings(Loss) $197,766 $231,792
======== ========
Diluted Earnings(Loss) Per Common Share $0.21 $0.18
===== =====
Cash Dividend Paid Per Common Share $0.11 $0.10
===== =====
See notes to condensed consolidated financial statements.
-4-
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Three Months Ended March 31, 1999
(unaudited)
Employee Accumulated
Additional Stock MSBP Other
Common Paid-In Retained Ownership Unearned Comprehensive Treasury
Stock Capital Earnings Plan Compensation Income Stock Total
-----------------------------------------------------------------------------------------------
Balance - December 31, 1997 $149,500 $7,100,600 $8,792,947 ($343,850) ($44,175) $817,476 ($2,645,314) $13,827,184
Net earnings -- -- 231,792 -- -- -- -- 231,792
Other comprehensive income:
Unrealized market
adjustments, net of tax and
reclassification adjustment 46,333 46,333
----------------------------------------------------------------------------------------------
Comprehensive income -- -- 231,792 -- -- 46,333 -- 278,125
----------------------------------------------------------------------------------------------
Repayment of ESOP debt -- -- -- 14,950 -- -- -- 14,950
Allocation of ESOP shares -- 25,796 -- -- -- -- -- 25,796
Amortization of deferred compensation -- -- -- -- 14,725 -- -- 14,725
Dividends paid - cash -- -- (116,750) -- -- -- -- (116,750)
Stock options exercised -- -- -- -- -- -- -- --
Treasury stock purchased -- -- -- -- -- -- -- --
Dividends paid - stock -- -- -- -- -- -- -- --
-------- ---------- ---------- -------- ------- -------- ---------- -----------
Balance - March 31,1998 $149,500 $7,126,396 $8,907,989 ($328,900) ($29,450) $863,809 ($2,645,314) $14,044,030
======= ======== ========== ========== ========= ======== ======== =========== ===========
Balance - December 31, 1998 $152,043 $7,319,578 $9,260,742 ($284,050) -- $1,106,701 ($7,134,347) 10,420,667
Net earnings -- -- 197,766 -- -- -- -- 197,766
Other comprehensive income:
Unrealized market
adjustments, net of tax and
reclassification adjustment (215,594) (215,594)
----------------------------------------------------------------------------------------------
Comprehensive income -- -- 197,766 -- -- (215,594) -- (17,828)
----------------------------------------------------------------------------------------------
Repayment of ESOP debt -- -- -- 14,950 -- -- -- 14,950
Allocation of ESOP shares -- 20,283 -- -- -- -- -- 20,283
Amortization of deferred compensation -- -- -- -- -- -- -- --
Dividends paid - cash -- -- (96,668) -- -- -- -- (96,668)
Stock options exercised -- -- -- -- -- -- -- --
Treasury stock purchased -- -- -- -- -- -- (3,293) (3,293)
Dividends paid - stock -- -- -- -- -- -- --
-------- ---------- ----------- -------- --------- ------- ---------- -----------
Balance - March 31,1999 $152,043 $7,339,861 $9,361,840 ($269,100) -- $891,107 ($7,137,640) $10,338,111
======= ======== ========== ========== ========= ========= ======== =========== ===========
See notes to consolidated condensed financial statements.
-5-
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended
March 31,
1999 1998
---------- ----------
Net Cash Provided by Operations $ 103,635 $ 888,718
Principal payments received on
held-to-maturity securities 654,140 507,179
Purchase of available-for-sale securities (5,500,000) (5,055,914)
Sale of available-for-sale securities 3,433,328 4,000,000
Principal payments received on
available-for-sale securities 2,041,309 967,829
Net decrease(increase) in loans 1,165,202 902,485
Purchase of loans (2,333,100) (1,903,187)
Investment in property and equipment and
real estate owned (3,600) (14,421)
------ -------
Net Cash Provided (Used) by Investing Activities $ (542,721) $ (596,029)
---------- ----------
Net increase (decrease) in deposits $ 710,725 $ (482,706)
Net increase (decrease) in advances from
borrowers for taxes and insurance 54,503 60,906
FHLB borrowings 5,500,000 7,000,000
Repayment of FHLB advance (5,311,876) (7,561,875)
Payments received from ESOP 14,950 14,950
Treasury stock purchased (3,293) --
Cash dividends paid (96,668) (116,749)
------- --------
Net Cash Provided (Used) by Financing Activities 868,341 (1,085,474)
------- ----------
Increase (Decrease) in Cash and Cash Equivalents 429,255 (792,785)
Cash and cash equivalents - beginning of period 3,365,045 2,638,807
--------- ---------
Cash and cash equivalents - end of period $3,794,300 $1,846,022
========== ==========
Supplemental disclosures
Cash paid for:
Interest $823,097 $914,616
======== ========
Income taxes $ 95,000 $ 39,700
======== ========
See notes to consolidated condensed financial statements.
-6-
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
(unaudited)
NOTE 1 - BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements include the accounts
of Tri-County Bancorp, Inc. (the "Company"), Tri-County Federal Savings Bank
(formerly Tri-County Federal Savings and Loan Association) (the "Bank") and
First Tri-County Services, Inc. All significant intercompany balances and
transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements were
prepared in accordance with generally accepted accounting principles for interim
financial information and with instructions for Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all information and disclosures
required by generally accepted accounting principles for complete financial
statements. The accompanying consolidated financial statements do not purport to
contain all the necessary financial disclosures required by generally accepted
accounting principles that might otherwise be necessary in the circumstances and
should be read together with the 1998 consolidated financial statements and
notes thereto of Tri-County Bancorp, Inc. and Subsidiaries included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1998.
However, all normal recurring adjustments have been made which, in the opinion
of Management, are necessary to the fair presentation of the financial
statements.
The results of operations for the three-month period ended March 31, 1999 are
not necessarily indicative of the results which may be expected for the year
ending December 31, 1999 or any other period.
See Notes 2 and 3.
NOTE 2 - EARNINGS PER SHARE
In February 1997, the FASB issued Statement No. 128, Earnings Per Share (SFAS
128). SFAS 128 replaced the calculation of primary and fully diluted earnings
per share (EPS) with basic and diluted EPS. Unlike primary EPS, basic EPS
excludes any dilutive effects of options, warrants, and convertible securities.
Diluted EPS is very similar to fully diluted EPS. All EPS amounts presented have
been restated, as applicable, to conform with the new requirements.
NOTE 3 - INVESTMENTS
Effective January 1, 1994, the Company adopted SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities. In accordance with SFAS No.
115, the Company classified its investment securities and mortgage-backed
securities as either "held-to-maturity," "available-for-sale," or "trading."
Management has determined that all applicable securities are either
"held-to-maturity" or "available-for-sale."
-7-
Investment and mortgage-backed securities designated as held-to-maturity are
stated at cost adjusted for amortization of the related premiums and accretion
of discounts, computed using the level yield method. The Company has the
positive intent and ability to hold these securities to maturity.
Investment and mortgage-backed securities designated as available-for-sale are
stated at estimated market value. Unrealized gains and losses are aggregated and
reported as a separate component of equity capital, net of deferred taxes. These
securities are acquired with the intent to hold them to maturity, but they are
available for disposal in the event of unforeseen liquidity needs.
Effective January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income. SFAS No. 130 requires that an enterprise (a) classify
items of other comprehensive income by their nature in a financial statement and
(b) display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section of a
statement of financial condition. The Company's only item of other comprehensive
income is the unrealized gain (loss) on securities available for sale, which is
reported net of tax effect. The following schedule reflects the unrealized
holding gains arising during the periods ended March 31, 1999 and 1998.
Before-Tax Tax Benefit Net-of-Tax
Amount or(Expense) Amount
---------- ----------- ----------
For the Three Months ended March 31, 1998
Accumulated Comprehensive Income
- Dec. 31, 1997 $1,238,601 ($421,125) $817,476
Unrealized hold gains(losses)
arising during the period 70,186 (23,853) 46,333
Gain(Loss) reclassification adjustment for
gains(losses) realized in net earnings -- -- --
--------- -------- --------
Accumulated Comprehensive Income
- March 31, 1998 $1,308,787 ($444,978) $863,809
========== ======== ========
For the Three Months ended March 31, 1999
Accumulated Comprehensive Income
- Dec. 31, 1998 $1,676,820 ($570,119) $1,106,701
Unrealized hold gains(losses)
arising during the period (330,355) 112,322 (218,033)
Gain(Loss) reclassification adjustment for
gains(losses) realized in net earnings 3,696 (1,257) 2,439
----- ------ -----
Accumulated Comprehensive Income
- March 31, 1999 $1,350,161 ($459,054) $891,107
=== ==== ========== ========= ========
-8-
PART I - FINANCIAL INFORMATION
Item 2 - Management's Discussion and Analysis or Plan of Operation
GENERAL
Tri-County Bancorp, Inc. (the "Company") was incorporated on June 15, 1993, and
is the holding company of Tri-County Federal Savings Bank (the "Bank"). On
September 28, 1993, the Bank completed its conversion from a mutual savings and
loan association to a stock form of ownership at which time the Company issued
747,500 shares of Common Stock and utilized a portion of the proceeds to acquire
all of the issued shares of the Bank.
The Company is headquartered in Torrington, Wyoming and its principal business
currently consists of the operation of its wholly owned subsidiary, Tri-County
Federal Savings Bank. The Bank's primary business is attracting retail deposits
from the general public and investing those deposits and other borrowed funds in
various loan products, including mortgage-backed and mortgage-related
securities, federal agency securities and other investment securities.
The Company's results of operations are dependent primarily on its net interest
income, which is the difference between the interest earned on its assets,
primarily its loans and securities portfolios, and its cost of funds, which
consists of the interest paid on its deposits and borrowings. The Company's net
income also is affected by its provision for loan losses as well as non-interest
income, compensation and benefits, occupancy expenses, Federal deposit insurance
premiums, other non-interest expenses, and income tax expense. Other
non-interest expenses consist of real estate lending operations, legal expenses,
accounting services and other miscellaneous costs. The earnings of the Company
are significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities.
CHANGES IN FINANCIAL CONDITION
ASSETS
The total assets of the Bank increased by $748,000 or 0.92% during the first
three months of 1999. The increase is primarily the result of increases in loans
receivable and cash and due from banks which more than offset decreases in
securities available for sale and held to maturity.
Interest earning deposits increased $437,000 during the period. The increase was
the result of a decision by the management of the Bank to hold more short-term
deposits in the existing interest rate environment.
Securities available-for-sale decreased by $282,000 million during the first
quarter of 1999. Securities totaling $3.44 million were sold, principal payments
and prepayments of $2.04 million were received from mortgage-backed securities,
and the market value of the securities decreased $0.33 million during the
period. These decreases were partially offset by purchases totaling $5.50
million.
Securities held-to-maturity decreased by $657,000. The decrease was the result
of principal payments and prepayments on the Bank's portfolio of mortgage-backed
securities.
-9-
Loans receivable increased $1.41 million during the first three months of 1999.
During this period, the Bank originated or purchased portfolio residential
mortgage loans totaling $3.30 million, non-residential mortgage loans totaling
$510,000, consumer loans totaling $329,000, and commercials loan in the amount
of $261,000. During the same period, the Bank received scheduled principal
payments and prepayments totaling $3.35 million on its loan portfolio. Of the
total mortgage loans originated or purchased during the year, $2.50 million were
adjustable rate and $1.31 million were fixed rate loans. Because of a lack of
demand for certain types of loans in the Bank's primary lending area, purchased
loans totaled 51% of mortgage lending during the period. The majority of
purchased loans are residential and non-residential real estate loans in
Colorado and Idaho mountain resort communities and non-residential real estate
loans along the front range of Colorado. Purchased loans are subjected to the
same underwriting standards and loan terms as those originated by the Bank for
its portfolio.
LIABILITIES
Deposit balances increased by $.711 million or 1.55% from $45.97 million at
December 31, 1998 to $46.68 million at March 31, 1999. The increase consisted of
increases of $63,000 in demand deposits and $1.27 million in savings and NOW
deposits and a decrease of $.60 million in time deposits.
Deferred income taxes decreased by $100,000 during the year and was mainly the
result of the application of SFAS No. 115, Accounting for Certain Investments in
Debt and Equity Securities, which requires unrealized gains and losses on
available-for-sale securities to be reported, net of deferred income taxes, as a
separate component of stockholders' equity. The market value of these securities
decreased $327,000 during the period, which resulted in a decrease in deferred
income taxes.
STOCKHOLDERS' EQUITY
The increase in additional paid-in capital of $20,000 was caused by the
application of an accounting standard which requires charging current expense
for the fair value of shares of stock committed to be released by the Bank's
Employee Stock Ownership Plan and crediting the difference between the fair
value and the cost of the shares to paid-in capital.
The increase in retained earnings was the result of net earnings totaling
$198,000 which more than offset the decrease in retained earnings caused by the
payments of dividends of $0.11 per share totaling $97,000.
As discussed earlier, SFAS No. 115 requires unrealized gains and losses on
securities classified available-for-sale to be shown as a separate component of
stockholders' equity in an amount, which is net of deferred income taxes. The
market value of securities classified as available-for-sale decreased during the
first quarter of 1999 and resulted in a decrease, net of deferred income tax, of
$216,000 in stockholder's equity.
-10-
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31,
1999 AND MARCH 31, 1998
NET INCOME
Net income decreased $34,000 during the quarter ended March 31, 1999 when
compared to the same period of 1998. Net interest income decreased by $60,000,
non-interest income increased by $10,000 and non-interest expense decreased by
$15,000.
INTEREST INCOME
Interest income from loans increased $18,000 or 2.08% for the quarter ended
March 31, 1999. The increase was the result of an increase in the average
balance of loans outstanding of $2.02 million which more than offset a decrease
in yield on the loans from 8.31% to 8.11%.
The decrease of $120,000 in interest on securities available for sale was the
result of a decrease in the average balance of securities of $6.23 million and a
decrease in the average yield on the portfolio from 6.38% to 5.97%. The decrease
in yield was the result of the purchase of securities, which on average had a
lower yield than the yield on the existing portfolio.
Interest on securities held to maturity decreased $62,000 and was caused
primarily by a decrease in the average balance of the portfolio of $2.88
million, which offset an increase in the yield on the portfolio from 7.63% to
7.53%. The increase in yield was the result of the higher level of principal
prepayments on the lower yielding mortgage-backed securities in the portfolio.
The increase in income from other interest-earning assets of $9,000 was
primarily caused by an increase in the average balance of these assets. This
category of assets consists primarily of interest-earning demand deposits held
at FHLB.
INTEREST EXPENSE
Interest expense on deposits decreased $21,000 during the first quarter of 1999.
This decrease was the result of a decrease in the average cost of deposits from
4.54% to 4.20%, which offset an increase of $1.43 million in the average balance
of deposits.
The Bank took advantage of a relatively inexpensive source of funding available
through the FHLB to supplement retail deposits. The average balance of these
borrowings was $4.32 million less during the first three months of 1999 than
during the same period of 1998 and the average cost of the borrowings decreased
from 5.64% to 5.42% which resulted in an decrease of $74,000 in interest
expense.
PROVISION FOR LOAN LOSSES
No provision for loan losses was made during the year of 1999. The allowance for
loan losses is based on Management's evaluation of the risk inherent in its loan
portfolio after giving due consideration to the changes in general market
conditions and in the nature and volume of the Bank's loan activity. The Bank
intends to continue to provide for loan losses based on its periodic review of
the loan portfolio and general market conditions. The allowance for loan losses
amounted to $399,000 at March 31, 1999. While the Bank maintains its allowance
for loan losses at a level which it considers adequate to provide for potential
losses, there can be no assurances that further additions will not be made to
the loss allowance and that such losses will not exceed the estimated amounts.
NON-INTEREST INCOME
Non-interest income increased $10,000 during the first quarter of 1999.
The increase in the gain on sale of loans of $4,000 was the result of an
increase in the dollar amount of loans sold. Gain on sale of available-for-sale
securities increased $4,000 during 1999. The securities sold in the current year
resulted in a net gain while there were no securities sold in 1998. Service
charges on deposits increased $2,000 mainly because of an increase in chargeable
events.
-11-
NON-INTEREST EXPENSE
Overall, non-interest expense decreased $15,000 during the quarter ended March
31, 1999.
Compensation and benefits decreased by $4,000 in 1999 and was primarily caused
by a decrease in pension costs.
Occupancy and equipment expense increased $3,000 and was primarily caused by an
increase in building repairs.
INCOME TAXES
Earning before taxes decreased by $35,000 while the provision for income taxes
decreased $1,000 for the quarter ended March 31, 1999. The main reason for the
disproportionate decrease in income tax in when compared to the decrease in
income before tax was due to the establishment, in the prior year, of a deferred
tax asset resulting from the difference between financial and tax accounting for
losses incurred from mortgage loan foreclosure and disposition.
LIQUIDITY AND CAPITAL RESOURCES
The Bank's primary sources of funds are deposits, amortization and prepayments
of loans and mortgage-backed securities, FHLB advances, sales and maturities of
investments and funds provided from operations. While scheduled loan
amortization and maturing investment securities are a relatively predictable
source of funds, deposit flow and loan prepayments are greatly influenced by
market interest rates, economic conditions and competition. The Bank manages the
pricing of its deposits to maintain a steady deposit balance. In addition, the
Bank invests its excess funds in short-term time deposits that provide liquidity
to meet lending requirements. Interest-bearing deposits at March 31, 1999
amounted to $2,971,654. The Bank's liquidity, represented by cash and cash
equivalents, is a product of its operating, investing and financing activities.
These activities are summarized as follows:
3 Months Ended March 31,
(in thousands)
-----------------------
1999 1998
Cash and cash equivalents at beginning of year $ 3,365 $ 2,639
-------- -------
OPERATING ACTIVITIES:
Net Income 198 232
Adjustments to reconcile net income to
net cash provided by operation activities (94) 657
------ -------
Net cash provided by operating activities 104 889
Net cash provided (used) by investing activities (543) (596)
Net cash provided (used) by financing activities 868 (1,086)
---- -------
Net increase (decrease) in cash and cash
equivalents 429 (793)
--- ----
Cash and cash equivalents at end of period $ 3,794 $ 1,846
======= =======
-12-
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments
such as Federal funds and interest-bearing deposits. If the Bank requires funds
beyond its ability to generate them internally, borrowing agreements exist with
the FHLB, which provides an additional source of funds.
The Bank anticipates it will have sufficient funds available to meet its current
loan commitments. At March 31, 1999, the Bank had outstanding commitments of
$2,005,539. Certificates of deposit scheduled to mature in one year or less at
March 31, 1999 totaled $23,506,438. Based on past experience, Management
believes that a substantial portion of such deposits will remain with the Bank.
The following table sets forth the Bank's capital position at March 31, 1999, as
compared to the minimum regulatory requirements:
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------------------------------------------------------
Dollars Ratio Dollars Ratio Dollars Ratio
------- ----- ------- ----- ------- -----
March 31, 1999
Total Equity Capital
(to risk-weighted assets) $9,429 26.9% $2,808 8.0% $3,510 10.0%
Tier 1 Capital
(to risk-weighted assets) $8,534 24.3% $1,404 4.0% $2,106 6.0%
Tier 1 Capital
(to adjusted total assets) $8,534 10.5% $3,236 4.0% $4,045 5.0%
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements of the Company and notes thereto,
presented elsewhere herein, have been prepared in accordance with generally
accepted accounting principles ("GAAP"), which require the measurement of
financial position and operating results in terms of historical dollars without
considering the change in the relative purchasing power of money over time due
to inflation. The impact of inflation is reflected in the increased cost of the
Company's operations. Unlike most industrial companies, nearly all the assets
and liabilities of the Company are financial. As a result, interest rates have a
greater impact on the Company's performance than do the effects of general
levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the prices of goods and services.
YEAR 2000 COMPLIANCE
During 1998, the Company adopted a Year 2000 Action Plan (the "Plan"). The
objectives of the Plan are to prepare the Company for the new millennium. As
recommended by the Federal Financial Institutions Examination Council, the Plan
encompasses the following phases: Awareness, Assessment, Renovation, Validation
and Implementation. These phases will enable the Company to identify risks,
develop detailed action plans, perform adequate testing, and complete
certification that its processing systems will be Year 2000 ready. Execution of
the Plan is currently on target. The Company is currently in the Implementation
Phase, which is to certify that systems are Year 2000 ready, along with
assurances that any new systems are compliant on a going-forward basis. The
Implementation Phase is on schedule and targeted for completion by June 30,
1999.
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Prioritization of the most critical software applications has been addressed,
along with contract and service agreements. The primary operating software for
the Company is obtained from and maintained by an external provider of software
(the "External Provider"). The External Provider has completed the renovation of
its software and the Company has tested the software. The tests verified that
the primary operating software is Year 2000 ready. The Company has contacted all
other material vendors and suppliers regarding their Year 2000 state of
readiness. Each of these third parties has delivered written assurance to the
Company that they expect to be Year 2000 compliant prior to the Year 2000. The
Renovation Phase met its completion target date of December 31, 1998. The
Validation Phase involved the testing of changes to hardware and software
accompanied by monitoring and testing with vendors. The Validation Phase met its
completion target date of March 31, 1999.
Costs will be incurred due to the replacement of non-compliant hardware and
software. The Company does not anticipate that the related overall costs will be
material in any single year. In total, the Company estimates that is costs for
compliance will amount to approximately $18,000 over the two-year period from
1998-1999. No assurance can be given that the Year 2000 Compliance Plan will be
completed successfully by the Year 2000, in which event the Company could incur
significant costs. Delays, mistakes or failures could have a significant adverse
impact on the financial statement of the Company.
Successful and timely completion of the Year 2000 project is based on
management's best estimates derived from various assumptions of future events,
which are inherently uncertain, including testing plans, and all vendors,
suppliers and customer readiness.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Neither the Company nor the Bank was engaged in any legal proceeding of a
material nature at March 31, 1999. From time to time, the Bank is a party
to legal proceedings in the ordinary course of business wherein it
enforces its security interest in loans.
Item 2. Changes in Securities
Not Applicable.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11: Statement regarding computation of earnings per share.
Exhibit 27: FDS (in electronic filing only)
(b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRI-COUNTY BANCORP, INC. AND SUBSIDIARIES
Date: May 14, 1999 /s/ Robert L. Savage
------------------------------- President and Chief Executive Officer
Date: May 14, 1999 /s/ Tommy A. Gardner
------------------------------- Vice President and Chief Financial Officer
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