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, 1996
( ) 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:
859,625 shares of Common Stock, Par Value $.01 per share as of December
31, 1996
Transitional Small Business Disclosure Format (check one): Yes ; No X
--- ---
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THREE RIVERS FINANCIAL CORPORATION
THREE RIVERS, MICHIGAN
FORM 10Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements of Three Rivers Financial Corporation (Unaudited)
Condensed Consolidated Balance Sheets as of December 31, 1996
and June 30, 1996 1
Condensed Consolidated Statements of Income for the three and six
months ended December 31, 1996 and 1995 2
Condensed Consolidated Statements of Changes in Shareholders' Equity 3
Consolidated Statements of Cash Flows for the six months ended
December 31, 1996 and 1995 4
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 9
PART II. OTHER INFORMATION 14
Signatures 15
3
THREE RIVERS FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS *
December 31 and June 30, 1996
(Unaudited)
- --------------------------------------------------------------------------------------------------------
December 31, June 30,
1996 1996
---- ----
ASSETS
Cash and due from other financial institutions $ 1,956,963 $ 2,613,637
Interest-earning deposits with other financial institutions 1,197,857 1,497,984
----------- -----------
Cash and cash equivalents 3,154,820 4,111,621
Interest-earning time deposits with other financial institutions 3,173,980 3,867,980
Securities available for sale 778,993 630,631
Securities held to maturity (fair value: $19,421,335 at
December 31, 1996, and $18,875,837 at June 30, 1996) 19,471,793 19,267,832
Loans receivable, net of allowance for loan losses of
$471,556 at December 31, 1996, and $440,835 at June 30, 1996) 58,923,548 56,042,608
Loans held for sale 121,200 -
Accrued interest receivable 542,924 554,937
Premises and equipment, net 1,452,000 1,484,805
Intangible assets 51,994 56,268
Foreclosed real estate 396,515 440,304
Investment in low-income housing partnership 486,499 499,880
Other assets 716,422 194,471
----------- -----------
Total assets $89,270,688 $87,151,337
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Demand deposits $ 2,285,517 $ 2,442,447
Savings and NOW deposits 20,090,378 21,086,566
Other time deposits 37,996,359 40,195,407
----------- -----------
Total deposits 60,372,254 63,724,420
Borrowed funds 14,844,287 9,210,609
Advances from borrowers for taxes and insurance 162,743 422,832
Deferred gain on sale of foreclosed real estate 55,884 66,864
Due to low-income housing partnership 461,740 461,740
Accrued expenses and other liabilities 574,034 479,274
----------- -----------
Total liabilities 76,470,942 74,365,739
Equity
Preferred stock, par value $.01; 500,000 shares authorized;
none issued and outstanding - -
Common stock, par value $.01; 2,000,000 shares authorized;
859,625 shares issued and 851,240 outstanding at
December 31, 1996 and June 30, 1996 8,596 8,596
Additional paid-in-capital 7,990,742 7,979,421
Retained earnings, substantially restricted 5,839,220 5,870,983
Unearned Employee Stock Ownership Plan shares (630,396) (630,396)
Unearned Recognition and Retention Plan shares (296,871) (331,461)
Treasury stock, at cost (8,385 shares) (111,545) (111,545)
----------- -----------
Total shareholders' equity 12,799,746 12,785,598
----------- -----------
Total liabilities and shareholders' equity $89,270,688 $87,151,337
=========== ===========
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* The financial information at June 30, 1996 is derived from the audited
financial statements for the year ended June 30, 1996.
The accompanying notes are an integral part of these consolidated financial
statements
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THREE RIVERS FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three months and six months ended December 31, 1996 and 1995
(Unaudited)
- --------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
December December
1996 1995 1996 1995
---- ---- ---- ----
Interest income
Loans receivable
First mortgage loans $1,019,565 $ 993,584 $2,039,770 $1,954,661
Consumer and other loans 247,257 226,861 487,154 464,290
Securities 131,792 69,638 217,728 118,149
Mortgage-backed and related securities 237,443 160,945 471,075 286,927
Other interest-earning assets 67,971 140,008 147,255 283,680
---------- ---------- ---------- ----------
Total interest income 1,704,028 1,591,036 3,362,982 3,107,707
Interest expense
Deposits 669,022 714,830 1,359,728 1,456,534
Borrowed funds 169,472 76,936 300,951 142,538
---------- ---------- ---------- ----------
Total interest expense 838,494 791,766 1,660,679 1,599,072
---------- ---------- ---------- ----------
NET INTEREST INCOME 865,534 799,270 1,702,303 1,508,635
Provision for loan losses 15,000 20,000 30,000 35,000
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 850,534 779,270 1,672,303 1,473,635
Noninterest income
Net gain on sale of loans 17,178 25,204 24,843 46,578
Net gain on foreclosed real estate 16,717 12,919 16,717 12,819
Net loss on sale of fixed assets 0 0 (1,003) 0
Other 115,076 100,181 213,061 196,321
---------- ---------- ---------- ----------
Total noninterest income 148,971 138,304 253,618 255,718
Noninterest expense
Compensation and benefits 321,856 242,504 634,365 467,629
Occupancy and equipment 111,826 99,212 214,806 196,706
SAIF deposit insurance premium 28,453 36,283 476,889 72,273
Other 220,805 255,700 426,076 501,139
---------- ---------- ---------- ----------
Total noninterest expense 682,940 633,699 1,752,136 1,237,747
---------- ---------- ---------- ----------
INCOME BEFORE FEDERAL INCOME TAXES 316,565 283,875 173,785 491,606
Federal income tax expense 114,200 100,650 63,710 172,556
---------- ---------- ---------- ----------
NET INCOME $ 202,365 $ 183,225 $ 110,075 $ 319,050
========== ========== ========== ==========
Earnings per share $ 0.26 $ 0.21 $ 0.14 $ 0.31
========== ========== ========== ==========
- --------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements
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THREE RIVERS FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Six months ended December 31, 1996
(Unaudited)
- --------------------------------------------------------------------------------
Balance at June 30, 1996 $12,785,598
Net income 110,075
Effect of shares committed to be released by ESOP, at market value 11,321
Cash dividends - $.165 per common share (141,838)
Amortization of 1,300 RRP shares 34,590
Balance at December 31, 1996 $12,799,746
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements
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THREE RIVERS FINANCIAL CORPORATIONS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended December 31, 1996 and 1995
(Unaudited)
- ----------------------------------------------------------------------------------------------------
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 110,075 $ 319,050
Adjustments to reconcile net income to
net cash provided from operating activities
Amortization/ (accretion) of
Intangible assets 4,274 23,545
Net deferred loan origination fees (35,717) (14,869)
Deferred gain on sale of foreclosed
real estate (10,980) (12,918)
Premiums and discounts on securities (16,377) 4,758
Provision for loan losses 30,000 35,000
RRP expense 34,590 -
ESOP expense 11,321 27,447
Change in unearned discounts on loans (1,762) (1,029)
Net loss (gain) on sale of foreclosed real estate
and fixed assets (4,733) 100
Loans originated for sale (1,434,630) (1,708,513)
Proceeds from sale of loans held for sale 1,338,274 1,963,541
Net gain on sales of loans held for sale (24,843) (46,579)
Depreciation of premises and equipment 101,552 96,131
Change in
Accrued interest receivable 12,013 (123,418)
Other assets (521,953) 233,834
Accrued expenses and other liabilities 94,760 (16,585)
----------- -----------
Total adjustments to reconcile net income to (424,211) 460,445
----------- -----------
Net cash provided by (used in) operating
activities (314,136) 779,495
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease (increase) in interest-earning time
deposits with other financial institutions $ 694,000 $ (895,000)
Net decrease (increase) in loans (2,866,436) 1,574,038
Purchase of loans - (2,571,006)
Premises and equipment expenditures (77,551) (89,005)
Proceeds from sale of fixed assets 7,800
Net sales (purchases) of securities available for sale (148,362) 499,863
Purchases of securities held to maturity (1,297,040) (6,969,681)
Paydowns on securities held to maturity 1,109,457 533,771
Proceeds from sale of foreclosed real estate 42,500 11,000
Proceeds from investment in low-income housing partnership 13,382 -
----------- -----------
Net cash used in investing activities (2,522,250) (7,906,020)
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(Continued)
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THREE RIVERS FINANCIAL CORPORATIONS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended December 31, 1996 and 1995
(Unaudited)
- ----------------------------------------------------------------------------------------------------
1996 1995
---- ----
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock, net of
conversion costs $ - $ 7,285,569
Cash dividends paid (141,838) (64,473)
Net increase (decrease) in deposits (3,352,166) 109,587
Net change in advances from borrowers for taxes
and insurance (260,089) (470,721)
Proceeds from borrowed funds 9,250,000 2,500,000
Repayments of borrowed funds (3,616,322) (1,134,372)
----------- -----------
Net cash provided by financing activities 1,879,585 8,225,590
----------- -----------
Net change in cash and cash equivalents (956,801) 1,099,065
Cash and cash equivalents at beginning of period 4,111,621 3,822,260
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,154,820 $ 4,921,325
=========== ===========
Supplemental disclosures of cash flow information
Cash paid for
Interest on deposits, advances and other
borrowings $ 1,700,699 $ 1,622,348
Income taxes 120,000 91,000
Transfers from loans to real estate acquired
through foreclosure - 33,789
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements
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THREE RIVERS FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six months ended December 31, 1996
(Unaudited)
Note 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for Form 10-QSB and, therefore,
do not include all disclosures required by generally accepted accounting
principals for complete presentation of financial statements. The
unaudited information for the six months ended December 31, 1996, and
1995 includes the consolidated results of operations of Three Rivers
Financial, Inc. (the "Company") and its wholly-owned subsidiary First
Savings Bank, FSB (the "Bank"). In the opinion of management, the
information reflects all adjustments (consisting only of normal
recurring adjustments) which were necessary for a fair presentation of
the results of operations for such periods but should not be considered
an indication of results for a full year or any other period.
Note 2 - SECURITIES
The Company classifies securities into held to maturity and available for
sale categories. Held-to-maturity securities are those which the Company
has the positive intent and ability to hold to maturity and are reported
at amortized cost. Available-for-sale securities are those the Company
may decide to sell if needed for liquidity, asset-liability management or
other reasons. Available-for-sale securities are reported at fair value,
with unrealized gains and losses, if applicable, included as a separate
component of equity, net of tax.
The Company's portfolios of securities held to maturity and available
for sale consist of securities acquired to meet the Company's regulatory
liquidity requirement and anticipated near term cash funding
requirements. Securities in these portfolios are U.S. Government and
federal agency securities, securities issued by states and political
subdivisions and corporate securities. The mortgage-backed and related
securities portfolio consist of issues from FHLMC, GNMA, FNMA, and other
collateralized mortgage obligations with contractual maturities ranging
from one to 25 years. The remaining securities held to maturity are
primarily due in one to five years. Approximately 94% of the combined
securities portfolio consists of fixed rate instruments while the
remainder consists of floating rate instruments. The net unrealized
depreciation on these portfolios is due to the higher interest rate
environment at the time these securities were purchased. As the duration
of these instruments shortens, the fair value will increase. Therefore,
management considers these losses temporary in nature at December 31,
1996.
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(Continued)
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THREE RIVERS FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six months ended December 31, 1996
(Unaudited)
NOTE 3 - DEPOSITS AND LOANS
The Company is principally engaged in the business of accepting deposits
from the general public through a variety of deposit programs and
investing those funds by originating loans secured by one-to-four family
residential properties located in its market area, loans secured by
multi-family residential and commercial properties, construction loans,
second mortgage loans on single-family residences, home equity lines of
credit and consumer loans, both secured and unsecured, including loans
secured by savings accounts. The Company sells most long-term fixed rate
mortgage loans to the secondary market. At December 31, 1996, the Company
had total assets of $89.3 million, deposits of $60.4 million, and net
loans receivable of $59.0 million (including loans held for sale).
NOTE 4 - BORROWINGS
Borrowings at December 31, 1996 consisted of advances from the Federal
Home Loan Bank (FHLB) of Indianapolis, bearing rates from 5.19% to 6.00%.
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 $5.8 million indexed to the
3 month LIBOR rate which adjust quarterly. The remaining balance of $9.0
million of advances are fixed rate, fixed term, with maturities from one
month to four 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,
1996.
NOTE 5 - EARNINGS PER COMMON SHARE
Earnings per common share for the three months ended December 31, 1996
were computed by dividing net income by the weighted average number of
share of common stock outstanding net of ESOP and Treasury Stock Shares.
The weighted average number of shares outstanding for the three months
ended December 31, 1996 was 789,919.
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(Continued)
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THREE RIVERS FINANCIAL CORPORATION
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Six months ended December 31, 1996
(Unaudited)
Note 6 - REGULATORY CAPITAL REQUIREMENTS
Savings institutions must meet three separate minimum capital-to-asset
requirements. The following table summarizes, as of December 31, 1996,
the capital requirements for the Bank and the Bank's actual capital
ratios. As of December 31, 1996, the Bank substantially exceeded all
current regulatory capital requirements.
Regulatory
Capital Requirement Actual Capital
---------------------- ------------------
(Dollars in thousands)
Amount Percent Amount Percent
---------- ---------- --------- -------
Risk-based capital $3,660 8.00% $10,928 23.89%
Core capital 2,667 3.00% 10,458 11.76%
Tangible capital 1,334 1.50% 10,458 11.76%
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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, 1996 to June 30, 1996 and the results
of operations for the three-month period ended December 31, 1996 and the
six-month period ended December 31, 1996, with the same periods ended December
31, 1995. This discussion should be read in conjunction with the financial
statements and footnotes included herein.
FINANCIAL CONDITION
December 31, 1996 compared to June 30, 1996.
The Company's total assets increased $2.1 million from $87.2 million at June
30, 1996 to $89.3 at December 31, 1996. The increase was due primarily to
increases in loans receivable and other assets. Such increases were partially
offset by decreases in cash and cash equivalents and interest-earning-time
deposits with other financial institutions.
Loans receivable increased $3.0 million or 5.36% from $56.0 million at June 30,
1996 to $59.0 million at December 31, 1996. This includes $121,000 in loans
held for sale.
Other assets increased $522,000 or 269.1% from $194,000 at June 30, 1996 to
$716,000 at December 31, 1996. The majority of this increase was due to the
purchase of annuities in order to replace benefits lost for two executive
officers resulting from changes in the pension plan for the plan year beginning
December 1, 1994. Also a deferred compensation plan was purchased for a
director.
Cash and cash equivalents decreased $900,000 or 22.0% from $4.1 million at June
30, 1996 to $3.2 million at December 31, 1996. This decease in cash was the
result of the increase in loan demand along with a decrease in deposits.
Interest-earning time deposits with other financial institutions decreased
$700,000 or 21.9% from $3.9 million to $3.2 million at December 31, 1996.
Securities increased $400,000 or 2.0% from $19.9 million at June 30, 1996 to
$20.3 million at December 31, 1996. Total securities held December 31, 1996
included $779,000 in securities available for sale and $19.5 million in
securities held to maturity. The securities available for sale consisted of
equity securities for which there is no stated maturity or interest rate. The
securities held to maturity consisted of U. S. Government and federal agency
securities, mortgage-backed and related securities and other collateralized
obligations. In order to obtain a higher yield, management increased the
Company's portfolio of mortgage-backed securities using funds from the
maturities of time deposits with other financial institutions.
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(Continued)
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THREE RIVERS FINANCIAL CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Total borrowed funds increased $5.6 million or 60.9% from $9.2 million at
June 30, 1996 to $14.8 million at December 31, 1996. Borrowed funds consist of
advances from the Federal Home Loan Bank ("FHLB") with both fixed and variable
interest rates and stated maturities ranging through 2001. The FHLB has
designed various borrowing programs to assist financial institutions in
managing liquidity needs and interest rate risk. This increase was the result
of an increase in loan demand along with a decrease in total deposits.
Total deposits decreased $3.4 million to $60.4 million for the six-month
period ended December 31, 1996. The largest decrease by deposit categories
was in time deposits and statement savings accounts. Management believes that
customers are seeking higher yielding investment alternatives due to the low
interest rate environment.
RESULTS OF OPERATIONS
Net income for the three months ended December 31, 1996 was $202,000 compared
to $183,000 for the three months ended December 31, 1995, an increase of
$19,000 or 10.4%. Increases in interest income of $113,000, or 7.1%,
partially offset by increases in interest expense of $46,000, or 5.8% and
increases in noninterest expense of $49,000, or 7.7%, primarily account for the
increase in net income.
Net income for the six months ended December 31, 1996 was $110,000 compared to
$319,000 for the six months ended December 31, 1995, a decrease of $209,000 or
65.5%. This was primarily a result of the BIF/SAIF Regulatory Burden Relief
Package signed by President Clinton on September 30, 1996. The impact of this
legislation on the Company's noninterest expense was approximately $411,000
pretax for the six-month period ended December 31, 1996.
In addition to the BIF/SAIF special assessment, net income for the six months
ended December 31, 1996 as compared to the same period in 1995 was impacted by
an increase of $166,000, or 35.5% in compensation and benefits primarily
related to additional stock-incentive and benefit plans resulting from the
conversion in August, 1995. Increases in interest expense of $62,000, or 3.9%
in 1996 as compared to 1995 further contributed to the decline in net income.
This increase in interest expense primarily related to additional FHLB
borrowings in 1996. These increased expenses were partially offset by
increases of approximately $255,000 or 8.2%, in interest income.
The provision for loan losses decreased $5,000 to $15,000 for the three-month
period ended December 31, 1996 as compared to $20,000 for the three-month
period ended December 31, 1995. This same decrease is reflected in the
six-month period ended December 31, 1996 as compared to the six-month period
ended December 31, 1995. The decision to decrease the loan loss provision was
based on management's review of its assets that were classified as of December
31, 1996.
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(Continued)
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THREE RIVERS FINANCIAL CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Compensation and benefits increased $79,000 to $322,000 from $243,000 for the
three-month period ended December 31, 1996 and $166,000 to $634,000 from
$468,000 for the six-month period ended December 31, 1996 as compared to the
corresponding periods in 1995. Included in the compensation and benefits
expense was an increase in the Employee Stock Ownership Plan (ESOP) expense of
$19,000 for the six-month period ending December 31, 1996. In connection with
the conversion of the Bank, an Employee Stock Ownership Plan (ESOP) was
established for the benefit of substantially all employees. To fund the ESOP,
the ESOP borrowed $687,700 from the Company for the purpose of purchasing
68,770 shares of stock at $10 per share. The loan is secured by the shares of
the Company's common stock purchased with the loans proceeds and will be repaid
by the ESOP with funds from the Bank's discretionary contributions to the ESOP
and earnings on ESOP assets. As the Bank periodically makes contributions to
the ESOP to repay the loan, shares will be released from a suspense account and
allocated among participants. According to the provisions of the ESOP Loan, as
of June 30, 1996, principal payments had been made against the loan in the
amount of $57,300. The increase in ESOP expense was due to a full six months
charged to income for the period ended December 31, 1996 compared to four
months expense for the corresponding period ended December 31, 1995. Also
included in compensation and benefits expense was $17,000 for the three-month
period ended December 31, 1996 and $35,000 for the six-month period ended
December 31, 1996, for the Management Recognition and Retention Plan (the
"Plan") as approved by the stockholders effective April 17, 1996. The purpose
of the Plan is to retain directors and officers in key positions by providing
such persons with a proprietary interest in the Holding Company as partial
compensation for their contributions to the Holding Company and to the Bank and
their Affiliates and as an incentive to make such contributions and to promote
the Holding Company's and the Bank's growth and profitability in the future.
Retirement expense increased by $19,000 to $16,000 for the three months ended
December 31,1996, compared to ($3,000) for the corresponding period ended
December 31, 1995. For the six-month period ended December 31, 1996,
retirement expense increased $34,000 to $32,000 from ($2,000) for the
corresponding period ended December 31, 1995. The reduced expense for the
period ended in 1995 was due to the Company changing retirement plans which
resulted in an overpayment in the new plan. Thus the expense for the three and
six-month periods ended December 31, 1995 was substantially lower as a result
of the one-time transfer of plan assets.
Other expense decreased $35,000 from $256,000 to $221,000 for the three-month
period ended December 31, 1996. For the six-month period ended December 31,
1996, other expense decreased $75,000 from $501,000 to $426,000. These
decreases were a result of negotiations of a new contract with Fiserv, the
corporation that handles data processing for the Company, the completion of the
amortization of a premium on core deposits, and an overall reduction in other
operating expenses.
Income tax expense is lower for the three and six-month periods ended December
31, 1996 due to lower taxable income as compared to the same periods in 1995.
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(Continued)
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THREE RIVERS FINANCIAL CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for loan
losses based on management's quarterly asset classification review, and
evaluation of the risk inherent in its loan portfolio and changes in the nature
and volume of its loan activity. Such evaluation considers, among other
matters, the estimated value of the underlying collateral, economic conditions,
cash flow analysis, historical loan loss experience, discussions held with
delinquent borrowers and other factors that warrant recognition in providing
for an adequate allowance for loan losses. As a result of this review process,
management recorded a provision for loan losses in the amount of $15,000 for
the three-month period ended December 31, 1996 and $30,000 for the six-month
period ended December 31, 1996. 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 amounts
allocated to the allowance for loan losses will be adequate to cover actual
losses that may occur.
Total non-performing assets decreased $14,000 at December 31, 1996 to $589,000
as compared to $603,000 at June 30, 1996. The ratio of non-performing assets
to total assets at December 31, 1996 was .66%, compared to .69% at June 30,
1996. Included in non-performing assets at December 31, 1996 were consumer
loans in the amount of $116,000, non-performing mortgages of $76,000, and
foreclosed real estate of $397,000.
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, 1996, $468,000 of
assets were classified as substandard, $-0- as doubtful, $-0- as loss, and
$19,000 as special mention. Management of the Bank reviews assets on a monthly
basis, and at the end of each quarter prepares the asset classification listing
in conformity with the OTS regulations.
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 borrowings
from the FHLB.
A standard of measure of liquidity for thrift institutions is the ratio of cash
and eligible investments to a certain percentage of net withdrawable savings
and borrowings due within one year. Currently,
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(Continued)
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the OTS encourages savings institutions to maintain a liquidity ratio of 5%, of
which 1% must be comprised of short-term investments. As of December 31, 1996,
the Bank's liquidity ratio was 11.84% with total liquid assets of $8,380,000;
6.89% in cash and short term investments, and 4.95% in qualifying long term
investments.
REGULATORY DEVELOPMENTS
Several new accounting standards have been issued by the Financial Accounting
Standards Board that will apply for the Company's consolidated financial
statements beginning with the year ending June 30, 1997. Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Loan-Lived Assets to Be Disposed Of," requires a
review of long-term assets for impairment of recorded value and resulting
write-downs if the value is impaired. SFAS No. 122, "Accounting for Mortgage
Servicing Rights," requires recognition of an asset when servicing rights are
retained on in-house originated loans that are sold. SFAS No. 123, "Accounting
for Stock-Based Compensation," encourages, but does not require, entities to
use a "fair value method" to account for stock-based compensation plans. If
fair value accounting is not adopted, entities must disclose the pro forma
effect on net income and on earnings per share had the accounting been adopted.
SFAS No. 125, "Accounting for Transfer and Servicing of Financial Assets and
Extinguishment of Liabilities," provides accounting and reporting standards
for transfers and servicing of financial assets and extinguishment of
liabilities and requires a consistent application of a financial-components
approach that focuses on control. Under that approach, after a transfer of
financial assets, an entity recognizes the financial and servicing assets it
controls and the liabilities it has incurred, and derecognizes liabilities when
extinguished. SFAS No. 125 also supersedes SFAS No. 122, and requires that
servicing assets and liabilities be subsequently measured by amortization in
proportion to and over the period of estimated net servicing income or loss,
and requires assessment for asset impairment or increased obligation based on
their fair values. SFAS No. 125 applies to transfers and extinguishment
occurring after December 31, 1996, and early or retroactive application is not
permitted.
These statements are not expected to have a material effect on the Company's
consolidated financial position or results of operation.
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PART II
ITEM 1 - LEGAL PROCEEDINGS
None
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
On October 23, 1996, the Company held its annual meeting of stockholders.
At the meeting G. Richard Gatton and Larry A. Clark were re-elected to
three-year terms on the Company's Board of Directors. The term of office
of directors G. Verglea Gotfryd, Thomas O. Monroe, Sr., Stephen R. Olson,
Philip Halverson, and John Mathews 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, 1997. The voting on these matters was as follows:
1. Election of Directors
G. Richard Gatton Larry A. Clark
For: 510,142 votes For: 510,142 votes
Withheld: 5,933 votes Withheld: 5,933 votes
2. Appointment of Auditors
For: 501,132 votes
Against: 3,375 votes
Abstentions: 5,635 votes
ITEM 5 - OTHER INFORMATION
On November 20, 1996, the Company declared a cash dividend of $.09 per
share which was payable on January 2, 1997, to stockholders of record on
December 12, 1996.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-k
None
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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 13, 1997 /s/ G. Richard Gatton
-------------------------------------
G. Richard Gatton
President and Chief Executive Officer
Date: February 13, 1997 /s/ Martha Romig
-------------------------------------
Martha Romig
Senior Vice-President, Treasurer and
Chief Financial Officer
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EXHIBIT INDEX
Exhibit No. Description
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27 Financial Data Schedule