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EXHIBIT 99.1
Dear Shareholder:
I am pleased to report to you the results of operations of Tri-County Financial
Corporation and its banking subsidiary, Community Bank of Tri-County, for the
nine months ended September 30, 2007. Net income increased to $4,237,374, or
35.2%, compared to $3,135,125 for the nine months ended September 30, 2006 and
diluted earnings per share were $1.49 compared to $1.19 for the comparable
period. Total assets increased to $597,668,667 up $22,172,653, or 3.9%, from
December 31, 2006.
The significant increase in net income for the nine months ended September 30,
2007 was attributed to several factors. As mentioned in the shareholder report
for the second quarter of 2007, the Bank settled on a sale of foreclosed real
estate in early July 2007. The $1,272,161 in proceeds from the sale are
reflected in non-interest income. The other factors accounting for the
performance of net income were an increase in net interest income over the
previous year and the containment of non-interest expense growth over the same
period. Net interest income, before the provision for loan losses, increased by
$1,241,879, or 9.4%, over the same period in 2006. This increase was achieved
through higher yields on earning assets and control of funding cost from retail
and wholesale sources. Noninterest expense increased by $232,636, or 2.5%, for
the nine months ended September 30, 2007 over the same period in 2006. The
increase in noninterest expense reflects the cost of temporary facilities for
our Leonardtown retail center while the regional facility is under construction.
The continued tight labor market conditions in Southern Maryland attributed to
the increase in employee related costs which increased by 6.7% for the nine
month period over the same period in 2006. The noninterest expense was partially
offset with reductions in cost of data processing, advertising and professional
costs.
Loan growth for the nine month period was $18,265,987, or 4.3%, and, while
modest, reflects the continued weakness in lending throughout the region.
Competition from out-of-market banks that have branch operations in our market
is very robust. The Bank's reputation as the lead community bank has provided a
competitive edge in the acquisition of new business relationships and should
continue to help gain market share. The provision for loan loss increased during
the nine month period ended September 30, 2007 by $370,153 over the same period
in 2006 to reflect the increase and composition of the loan portfolio and the
assessment of the impact on the national and local economic conditions affecting
construction and development loans.
With the national focus on the impact of the subprime loan crisis, the
residential loan market activity has been significantly curtailed over
comparable periods. The Bank has never engaged in or knowingly purchased any
loans or securities that may be defined as or contain subprime loans. The Bank's
delinquency rates remain well below its peer community banks and management is
carefully monitoring the market conditions as the national situation unfolds.
In conjunction with the overall slowing of the economy, the Bank is managing its
deposit funding to pace the loan demand and to continue restructuring its
funding sources. Total deposits increased by $38,969,588, or 9.3%, during the
nine month period. The total deposit figure includes the reduction of
$18,000,000 in brokered deposits with funds acquired through retail deposit
growth. Non-interest bearing deposits increased by $2,945,679 or 6.7%. Wholesale
funding declined by $20,047,295, or 19.5%, for the period ended September 30,
2007.
As mentioned in previous shareholder letters, the Bank is currently in the
process of constructing two banking facilities. A de novo retail center for
Southern Calvert County in Lusby, Maryland is scheduled to open in December of
this year. It will be our tenth retail center. The larger regional facility
under construction will house the established Leonardtown retail center and
provide office space for the Bank's use. It is scheduled to open in the second
quarter of 2008.
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Currently, the Company is conducting a Private Placement Offering in the
community to generate capital for its ongoing business uses and to enable it to
continue with its strategic plans for growth in the Southern Maryland market.
As we enter the final quarter of the year, the Company is well poised to pursue
opportunities that may present themselves as the economic climate changes over
the next year. With your continued support, we can serve our market through our
strength as the leading community based financial services company.
Yours truly,
/s/ Michael L. Middleton
Michael L. Middleton
President
Chairman of the Board
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(UNAUDITED)
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SEPTEMBER 30, 2007 DECEMBER 31, 2006
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ASSETS
Cash and due from banks $ 5,410,952 $ 3,157,595
Interest-bearing deposits with banks 22,575,979 14,260,560
Federal Funds sold 4,210,158 772,351
Investment securities available for sale 9,187,177 9,301,676
Investment securities held to maturity 85,961,892 97,804,849
FHLB and Federal Reserve Stock 5,130,000 6,100,400
Loans receivable, net 440,745,786 422,479,799
Premises and equipment, net 8,426,868 6,822,461
Foreclosed real estate -- 460,884
Accrued interest receivable 3,146,116 2,837,413
Investment in bank owned life insurance 10,025,888 8,762,761
Other assets 2,847,851 2,735,265
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TOTAL ASSETS $ 597,668,667 $ 575,496,014
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LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 456,982,990 $ 418,013,402
Short-term borrowings 1,550,576 6,567,702
Long-term debt 81,015,767 96,045,936
Guaranteed preferred beneficial interest in junior Subordinated Debentures 12,000,000 12,000,000
Accrued expenses and other liabilities 5,242,651 5,139,637
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TOTAL LIABILITIES $ 556,791,984 $ 537,766,677
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STOCKHOLDERS' EQUITY
Common Stock $ 26,375 $ 26,423
Surplus 9,844,763 9,499,946
Retained Earnings 31,435,092 28,353,792
Accumulated Other Comprehensive Income (102,894) (53,822)
Unearned ESOP Shares (326,653) (97,002)
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TOTAL STOCKHOLDERS' EQUITY $ 40,876,683 $ 37,729,337
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 597,668,667 $ 575,496,014
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CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
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2007 2006
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Interest Income $ 29,203,917 $ 26,314,671
Interest Expense 15,038,183 13,363,816
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Net Interest Income $ 14,165,734 $ 12,950,855
Loan Loss Provision 659,288 289,135
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Net Interest Income After Loan Loss Provision $ 13,506,446 $ 12,661,720
Non-Interest Income 2,864,188 1,502,782
Non-Interest Expense 9,632,470 9,399,834
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Income Before Income Tax Expense $ 6,738,164 $ 4,764,668
Income Tax Expense 2,500,790 1,629,543
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Net Income $ 4,237,374 $ 3,135,125
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STOCK ACTIVITY
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Nine Months Ended
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September 30,
2007 2006
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EARNINGS PER SHARE:
Basic $ 1.60 $ 1.19
Diluted $ 1.49 $ 1.11
WEIGHTED-AVERAGE COMMON AND
COMMON EQUIVALENT
SHARES OUTSTANDING:
Basic 2,643,597 2,640,477
Diluted 2,836,440 2,819,123
Total Shares Outstanding
September 30, 2007 2,637,465
Book Value per Share at
September 30, 2007 $ 15.50
STOCK TRADE TRANSACTION INFORMATION
January 1, 2007 through September 30, 2007
Total Shares Traded 47,442
Share Price Average High Low
$ 26.15 $ 60.00 $ 24.00
*Share and per share data have adjusted to reflect the three
for two common stock split effected on November 30, 2006
as if it had occurred on January 1, 2006.
Transfer Agent:
BNY Mellon Shareowner Services
Stock Transfer Department
P.O. Box 11283
New York, NY 10286-1283
1-877-889-1982
www.bnymellon.com/shareowner/isd
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Stock Transactions and Inquiries:
Ms. Christy Lombardi
Shareholder Relations
Community Bank of Tri-County
P. O. Box 38
Waldorf, Maryland 20604
(240)-427-1037
(301) 885-1437 Fax
(888) 745-2265 Toll Free
clombardi@cbtc.com
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