-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Pe8M5GJl3LFN7h5I1SexgB9+hc/2CvA30Tq9KVnV2H0QPHZIdfm13CiB+cDQo6S2 MekhAuvmrk+WilhtzzFBcQ== 0000904280-02-000154.txt : 20020515 0000904280-02-000154.hdr.sgml : 20020515 20020515123156 ACCESSION NUMBER: 0000904280-02-000154 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRI COUNTY FINANCIAL CORP /MD/ CENTRAL INDEX KEY: 0000855874 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 520692188 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-18279 FILM NUMBER: 02649789 BUSINESS ADDRESS: STREET 1: 3035 LEONARDTOWN RD STREET 2: P O BOX 38 CITY: WALDORF STATE: MD ZIP: 20601 BUSINESS PHONE: 3016455601 MAIL ADDRESS: STREET 1: 3035 LEONARDTOWN ROAD CITY: WALDORF STATE: MD ZIP: 20601 10-Q 1 fm10q33102-1494.txt FORM 10-Q 3-31-02 TRI-COUNTY FINANCIAL CORP UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 2002 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to _________ Commission File Number 0-18279 ------------------------------ TRI-COUNTY FINANCIAL CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) Maryland 52-1652138 - ------------------------------- ---------------------- (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3035 Leonardtown Road, Waldorf, Maryland 20601 - ----------------------------------------- --------------- (Address of principal executive offices) (Zip Code) (301) 843-0854 ---------------------------------------------------- (Registrant's telephone number, including area code) N/A ---------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark 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 preceding 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 ---- ---- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. As of May 5, 2002 registrant had outstanding 769,033 shares of Common Stock. TRI-COUNTY FINANCIAL CORPORATION FORM 10-Q INDEX ----- PART I - FINANCIAL INFORMATION PAGE Item 1 - Financial Statements (Unaudited) Consolidated Balance Sheets - March 31, 2002 and December 31, 2001 3 Consolidated Statements of Income and Comprehensive Income - Three Months Ended March 31, 2002 and 2001 4 Consolidated Statements of Cash Flows - Three Months Ended March 31, 2002 and 2001 5-6 Notes to Consolidated Financial Statements 7 Item 2- Management's Discussion and Analysis of Financial Condition and Results of Operations 8-11 Item 3 - Quantitative and Qualitative Disclosure about Market Risk 11 PART II - OTHER INFORMATION 12 Item 6 - Exhibits and Reports on Form 8-K SIGNATURES 13 2 PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS (UNAUDITED) TRI-COUNTY FINANCIAL CORPORATION CONSOLIDATED BALANCE SHEETS MARCH 31, 2002 AND DECEMBER 31, 2001
ASSETS March 31, 2002 December 31, 2001 Cash and due from banks $ 1,159,803 $ 693,439 Interest-bearing deposits with banks 6,951,148 7,678,158 Investment securities available for sale - at fair value 42,414,268 41,673,742 Investment securities held to maturity - at amortized cost 2,980,804 2,289,354 Stock in Federal Home Loan Bank and Federal Reserve Bank - at cost 3,035,550 3,035,550 Loans held for sale 723,280 2,354,315 Loans receivable - net of allowance for loan losses of $2,327,259 and $2,281,581, respectively 190,404,886 193,450,011 Premises and equipment, net 5,666,599 5,432,848 Foreclosed real estate 2,074,132 1,800,569 Accrued interest receivable 1,114,792 1,049,401 Other assets 2,653,235 2,499,903 ------------- ------------- TOTAL ASSETS $ 259,178,497 $ 261,957,290 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Noninterest-bearing deposits $ 17,480,145 $ 17,738,165 Interest-bearing deposits 163,511,427 165,378,369 ------------- ------------- Total deposits 180,991,572 183,116,534 Short-term borrowings 715,383 1,813,317 Long-term debt 48,650,000 48,650,000 Accrued expenses and other liabilities 2,670,883 2,790,981 ------------- ------------- Total liabilities 233,027,838 236,370,832 ------------- ------------- STOCKHOLDERS' EQUITY: Common stock - par value $.01; authorized - 15,000,000 shares; issued 763,031 and 756,805 shares, respectively 7,630 7,568 Surplus 7,593,817 7,545,590 Retained earnings 18,300,943 17,678,367 Accumulated other comprehensive income 397,865 555,513 Unearned ESOP shares (149,596) (200,580) ------------- ------------- Total stockholders' equity 26,150,659 25,586,458 ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 259,178,497 $ 261,957,290 ============= =============
See notes to consolidated financial statements 3 TRI-COUNTY FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME THREE MONTHS ENDED MARCH 31, 2002 AND 2001
THREE MONTHS ENDED MARCH 31, ------------------------------ 2002 2001 INTEREST INCOME: Interest and fees on loans $ 3,489,660 $ 3,810,273 Taxable interest and dividends on investment securites 654,697 1,076,151 Interest on bank deposits 23,242 21,797 ----------- ----------- Total interest income 4,167,599 4,908,221 ----------- ----------- INTEREST EXPENSE: Interest on deposits 909,723 1,694,262 Interest on long term debt 639,905 201,571 Interest on other borrowings 360 591,386 ----------- ----------- Total interest expenses 1,549,988 2,487,219 ----------- ----------- NET INTEREST INCOME 2,617,611 2,421,002 PROVISION FOR LOAN LOSSES 70,000 90,000 ----------- ----------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,547,611 2,331,002 ----------- ----------- NONINTEREST INCOME: Loan appraisal, credit, and miscellaneous charges 71,788 56,192 Net gain on sale of loans held for sale 102,758 23,868 Service charges 218,342 250,920 Other income 4,461 16,548 ----------- ----------- Total noninterest income 397,349 347,528 ----------- ----------- NONINTEREST EXPENSE: Salary and employee benefits 1,062,869 960,295 Occupancy expense 167,527 144,376 Deposit insurance and surety bond premiums 24,765 35,883 Data processing expense 103,523 105,984 Advertising 72,544 47,162 Depreciation 43,999 53,385 Other 454,067 334,664 ----------- ----------- Total noninterest expenses 1,929,294 1,681,749 ----------- ----------- INCOME BEFORE INCOME TAXES 1,015,666 996,781 INCOME TAXES 364,600 348,000 ----------- ----------- NET INCOME 651,066 648,781 OTHER COMPREHENSIVE INCOME, NET OF TAX Net unrealized holding gains (losses) arising during the period (157,648) 451,228 ----------- ----------- COMPREHENSIVE INCOME $ 493,418 $ 1,100,009 =========== =========== EARNINGS PER SHARE Basic .86 .83 Diluted .82 .80
See notes to consolidated financial statements 4 TRI-COUNTY FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 2002 AND 2001
THREE MONTHS ENDED MARCH 31, -------------------------------- 2002 2001 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 651,066 $ 648,781 Adjustments to reconcile net income to net cash provided (used) by operating activities: Provision for loan losses 70,000 90,000 Depreciation and amortization 119,499 77,550 Net amortization of premium/discount on investment securities (109) 10,485 Deferred income tax benefit - (109,000) (Increase) decrease in accrued interest receivable (65,391) 102,284 Decrease in deferred loan fees (7,164) (4,734) (Decrease) increase in accounts payable, accrued expenses, and other liabilities (82,439) 533,543 Increase in other assets (426,895) (359,777) Gain on disposal of premises and equipment - (8,386) Origination of loans held for sale (6,376,035) (840,450) Gain on sales of loans held for sale (102,758) (23,869) Proceeds from sale of loans held for sale 4,847,758 858,869 ------------ ------------ Net cash (used) provided by operating activities (1,372,468) 975,296 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Net decrease (increase) in interest-bearing deposits with banks 727,010 (655,316) Purchase of investment securities available for sale (18,653,097) (6,543,175) Proceeds from sale, redemption or principal payments of investment securities available for sale 17,717,374 9,104,510 Purchase of investment securities held to maturity (1,201,212) - Proceeds from maturities or principal payments of investment securities held to maturity 509,762 216,858 Loans originated or acquired (15,228,719) (22,289,790) Principal collected on loans 21,473,078 12,454,548 Proceeds from disposal of premises and equipment - 8,963 Purchase of premises and equipment (353,250) (159,188) ------------ ------------ Net cash provided (used) in investing activities 4,990,946 (7,862,590) ------------ ------------
5 TRI-COUNTY FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 2002 AND 2001
THREE MONTHS ENDED MARCH 31, -------------------------------- 2002 2001 CASH FLOWS FROM FINANCING ACTIVITIES: Net (decrease) increase in deposits $(2,124,962) $ 4,993,102 Proceeds from long-term borrowings - 10,250,000 Payments of long-term borrowings - (5,000,000) Net decrease in other borrowed funds (1,097,934) (2,776,308) Exercise of stock options 37,830 31,817 Net change in unearned ESOP shares 61,452 49,967 Redemption of common stock (28,500) (118,678) ----------- ----------- Net cash provided by financing activities (3,152,114) 7,429,900 ----------- ----------- (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 466,364 542,606 CASH AND CASH EQUIVALENTS - JANUARY 1 693,439 645,817 CASH AND CASH EQUIVALENTS - MARCH 31 1,159,803 1,188,423 ----------- ----------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the three months for: Interest $ 1,670,605 $ 2,507,816 =========== =========== Income taxes $ 275,000 $ 175,000 =========== ===========
See notes to consolidated financial statements 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------ 1. BASIS OF PRESENTATION General - The consolidated financial statements of Tri-County Financial Corporation (the "Company") and its wholly owned subsidiary, Community Bank of Tri-County (the "Bank") included herein are unaudited; however, they reflect all adjustments consisting only of normal recurring accruals that, in the opinion of Management, are necessary to present fairly the results for the periods presented. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The Company believes that the disclosures are adequate to make the information presented not misleading. The results of operations for the three months ended March 31, 2002 are not necessarily indicative of the results of operations to be expected for the remainder of the year. Certain previously reported amounts have been restated to conform to the 2002 presentation. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report for the year ended December 31, 2001. 2. EARNINGS PER SHARE Basic and diluted earnings per share, have been computed based on weighted-average common and common equivalent shares outstanding as follows:
THREE MONTHS ENDED MARCH 31, -------------------------- 2002 2001 Basic 758,760 778,677 Diluted 791,100 809,893
7 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including discussions of Tri-County Financial Corporation's (the "Company's") goals, strategies and expected outcomes; estimates of risks and future costs; and reports of the Company's ability to achieve its financial and other goals. These forward-looking statements are subject to significant known and unknown risks and uncertainties because they are based upon future economic conditions, particularly interest rates, competition within and without the banking industry, changes in laws and regulations applicable to the Company and various other matters. Because of these uncertainties, there can be no assurance that actual results, performance or achievements of the Company will not differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. GENERAL The Company is a bank holding company organized in 1989 under the laws of the State of Maryland. It presently owns all the outstanding shares of capital stock of the Community Bank of Tri-County (the "Bank"), a Maryland-chartered commercial bank. The Company engages in no significant activity other than holding the stock of the Bank and operating the business of the Bank. Accordingly, the information set forth in this report, including financial statements and related data, relates primarily to the Bank and its subsidiaries. The Bank serves the southern Maryland area through its main office and eight branches located in Waldorf, Bryans Road, Dunkirk, Leonardtown, La Plata, Charlotte Hall, and California, Maryland. The Bank is engaged in the commercial and retail banking business as authorized by the banking statutes of the State of Maryland and applicable Federal regulations, including the acceptance of demand and time deposits, and the origination of loans to individuals, associations, partnerships and corporations. The Bank's real estate financing consists of residential first and second mortgage loans, home equity lines of credit and commercial mortgage loans. Commercial lending consists of both secured and unsecured loans. The Bank is a member of the Federal Reserve and Federal Home Loan Bank ("FHLB") Systems. The Savings Association Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation ("FDIC") provides deposit insurance coverage up to applicable limits. Since its conversion to a state chartered commercial bank in 1997, the Bank has sought to increase its commercial, commercial real estate, construction, second mortgage, home equity, and consumer lending business as well as the level of transactional deposits to levels consistent with similarly sized commercial banks. As a result of this emphasis, the Bank's percentage of assets invested in residential first mortgage lending and investment securities has declined since 1997. Conversely, targeted loan types have increased. The Bank has also seen an increase in transactional deposit accounts while the percentage of total liabilities represented by certificates of deposits has also declined. Management believes that these changes will enhance the Bank's overall long-term financial performance. Management recognizes that the shift in composition of the Bank's loan portfolio will tend to increase its exposure to credit losses. The Bank has continued to evaluate its allowance for loan losses and the associated provision to compensate for the increased risk. Any evaluation of the allowance for loan losses is inherently inexact and reflects management's expectations as to future economic conditions in the Southern Maryland area as well as individual borrower's circumstances. Management believes that its allowance for loan losses is adequate. For the last several quarters, the national and local economy has experienced a significant slowing if not an actual contraction in economic growth. The local economy in our market area has remained strong in relation to the national and statewide economy. Prospects for growth appear to be steady, and local employment remains strong. The Bank remains exposed to asset deterioration should the local economy experience a prolonged period of economic decline. In addition, any Federal Reserve action on interest rates may affect the Bank's financial performance. On April 28, 2002, a tornado caused damages to property in our market area. The Company `s facilities suffered no damage, and we are not aware of any customer who suffered material losses which would affect their ability to meet obligations to repay loans. We do not believe that the storm will cause material long term economic damage to our market area. In the last several years, the Bank has increased its sources of noninterest income through fees gathered on transactional accounts, the sale of non-deposit products including investments, and continued operation of our residential mortgage operation. These fees have continued to grow over the last several quarters, while the Bank's fee income from the residential mortgage lending business has decreased due to the Bank's shift in lending emphasis. Management believes that the Bank's strong local focus and responsiveness to customers will enable it to increase its fee income over time. 8 SELECTED FINANCIAL DATA
THREE MONTHS ENDED MARCH 31, --------- 2002 2001 Condensed Income Statement Interest Income $4,167,599 $4,908,221 Interest Expense 1,549,988 2,487,219 Net Interest Income 2,617,611 2,421,002 Provision for Loan Losses 70,000 90,000 Noninterest Income 397,349 347,528 Noninterest Expenses 1,929,294 1,681,749 Income Before Income Taxes 1.015,666 996,781 Income Tax Expense 364,600 348,000 Net Income 651,006 648,781 Per Common Share Basic Earnings $ .86 $ .83 Diluted Earnings .82 .80 Book Value 34.27 31.43
RESULTS OF OPERATIONS Net income for the three month period ended March 31, 2002 totaled $651,066 ($.86 basic and $.82 fully diluted earnings per share) compared with a total of $648,781 ($.83 basic and $.80 fully diluted earnings per share) for the same period in the prior year. This increase of $2 thousand or .4% was caused by several factors. Net income was positively affected by the growth in the Bank's net interest income, as well as growth in the Bank's noninterest income; this was partially offset by an increase in noninterest expenses and income tax expense. Interest income decreased to $4.2 million in the current period compared to $4.9 million for the same period in the prior year. This decrease of $741 thousand or 15.1% was caused primarily by an overall decline in interest rates on earning assets, which were affected by the declining interest rate environment. This decline in interest rate yield on earning assets was partially offset by a slight increase in average balances of interest earning assets. In addition, earning assets shifted from investments to loans compared to the same period during the prior year. Interest expense also decreased to $1.5 million in the period ending March 31, 2002 as compared to $2.5 million in the same period in the prior year a decrease of $937 thousand or 37.7%. As with the change in interest income, this decrease was a reflection of the declining interest rate environment experienced during the last year. Interest expense also declined as a result of the Bank's increase in noninterest bearing deposit accounts. The Bank's interest expense declined faster than its interest income due to the decline in interest rates. Further declines in interest rates would probably not lead to similar results as the Bank has decreased interest rates on certain products to extremely low levels. The Bank is attempting to protect its interest rate position in the event of increases in interest rates by lengthening to the extent possible average maturities and adding interest rate sensitive loans. Provision for loan losses declined slightly from prior year levels to $70 thousand from $90 thousand for the periods ending March 31, 2002 and 2001, respectively. Management will continue to periodically review its allowance for loan losses and the related provision and adjust as deemed necessary. This review will include a review of economic conditions nationally and locally, as well as a review of the performance of significant major loans and the overall portfolio. Noninterest income increased to $397 thousand for the three month period ending March 31, 2002, an increase of $50 thousand or 14.3% over the prior year total of $348 thousand. Decreases in service charges on deposit accounts were offset by an increase in fees and gains related to mortgage loan originations and sales. 9 Noninterest expense for the three month period increased by $248 thousand or 14.7% to $1.9 million from $1.7 million in the same period for the prior year. Expense increases were primarily in personnel, occupancy, advertising, and other expenses that were needed to support increased levels of loans and deposits. Noninterest expense was also affected by our planned conversion to another core system provider. Costs wee incurred for training, travel, and other costs to prepare the Bank for the planned conversion, scheduled to take place on May 18, 2002. Income taxes increased to $365 thousand or 35.9% of pretax income in the current year compared to $348 thousand or 34.9% of pretax income in the prior year. The increase in the tax rate was primarily attributable to an increase in the state income tax burden. In the prior period, taxes were substantially reduced because income earned on investment securities held by the Bank's investment corporation subsidiary, Tri-County Investment Corporation ("TCIC") was not subject to the state income tax. In the current year, reductions in the assets invested in TCIC and a reduction in the overall yield on invested assets have reduced the amount of income sheltered from state income tax, increasing the effective tax rate. FINANCIAL CONDITION Assets Total assets as of March 31, 2002 decreased by $2.8 million to $259.2 million from the December 31, 2001 level of $262 million. The Bank's loan portfolio declined by $3 million or 1.6% during the three month period ending March 31, 2002. Most of the decline was related to reductions in the level of purchased interests in certain loans, and to continued prepayments on our residential mortgage loan portfolio. The decline in the loan portfolio was partially offset by a slight increase in total investment securities to $45.4 million at March 31, 2002 from $44.0 million as of December 31, 2001, an increase of $1.4 million or 3.3%. At March 31, 2002 the Bank's allowance for loan losses totals $2.3 million or 1.22% of loan balances as compared to $2.3 million or 1.18% of loan balances at December 31, 2001. Management's determination of the adequacy of the allowance is based on a periodic evaluation of the portfolio with consideration given to the overall loss experience; current economic conditions; volume, growth and composition of the loan portfolio; financial condition of the borrowers; and other relevant factors that, in management's judgment, warrant recognition in providing an adequate allowance. Management believes that the allowance is adequate. Investment securities, including both the available for sale and held to maturity portfolios, increased from $44.0 million to $45.4 million an increase of $1.4 million or 3.3%. Increases were primarily the result of additional purchases of investments using loan proceeds of loan prepayments. Cash and due from banks increased by $466 thousand, or 67% from December 31, 2001's total. Interest-bearing deposits with banks declined by $727 thousand or 9.5% during the quarter to $7.0 million at March 31, 2002. The level of property and equipment balances increased $234 thousand primarily due to upgrades of computer equipment and premises. Liabilities Deposit balances decreased by $2.1 million or 1.2% for the three months ended March 31, 2002. This decline occurred in both interest and noninterest bearing deposits. Management believes that the low interest rate environment is decreasing customers' demands for interest bearing accounts. The Bank will continue to market offerings in their noninterest bearing accounts despite the slight decline in balances for the quarter ending March 31, 2002. The Bank has used excess funds generated by the decline in assets to reduce short term borrowings, which declined to $715 thousand from $1.8 million at December 31, 2001, a reduction of $1.0 million or 60.6%. Long term debt was unchanged at $48.7 million at March 31, 2002 and December 31, 2001. Other liabilities declined slightly to $2.7 million at March 31, 2002 from $2.1 million at December 31, 2001, a decline of 4.3%. Stockholders' Equity Stockholders' equity increased $564 thousand or 2.2% to $26.2 million at March 31, 2002 compared to $25.6 million at December 31, 2001. This reflects the net income of $651,066 for the three month period partially offset by a $157,648 decline in accumulated other comprehensive income. Other changes in equity occurred as a result of using $28,500 to purchase shares in the open market and retire them, the exercise of stock options of $37,830, and a change in unearned ESOP shares of $61,452. Book value on a per share basis, $34.27 at March 31, 2002, as compared to $33.80 at December 31, 2001, reflects a 1.4% increase, in line with the change in stockholder's equity. As part of its capital management strategy, the Board has approved certain purchases, for retirement, of shares offered for sale by its stockholders. For the three months ended March 31, 2002, the Company purchased 1,000 shares for $28,500. Additional stock acquisitions and retirements may be considered in the future. The Company has $600 thousand of cash available at the holding company level available for such purchases or for other cash needs of the holding company. 10 LIQUIDITY AND CAPITAL RESOURCES The Company currently has no business other than that of the Bank and does not currently have any material funding commitments. The Company's principal sources of liquidity are cash on hand and dividends received from the Bank. The Bank is subject to various regulatory restrictions on the payment of dividends. The Bank's principal sources of funds for investments and operations are net income, deposits from its primary market area, principal and interest payments on loans, interest received on investment securities and proceeds from maturing investment securities. Its principal funding commitments are for the origination or purchase of loans and the payment of maturing deposits. Deposits are considered a primary source of funds supporting the Bank's lending and investment activities. The Bank's most liquid assets are cash and cash equivalents, which are cash on hand, amounts due from financial institutions, federal funds sold, and money market mutual funds. The levels of such assets are dependent on the Bank's operating financing and investment activities at any given time. The variations in levels of cash and cash equivalents are influenced by deposit flows and anticipated future deposit flows. The Bank may borrow up to 35% of consolidated Bank assets on a line available from the FHLB. As of March 31, 2002, the maximum available under this line would be $91 million, while current outstanding advances totaled $48.7 million. In order to draw on this line the Bank must have sufficient collateral. Qualifying collateral includes residential 1-4 family first mortgage loans and various investment securities. REGULATORY MATTERS The Bank is subject to Federal Reserve Board capital requirements as well as statutory capital requirements imposed under Maryland law. At March 31, 2002, the Bank's tangible, leverage and risk-based capital ratios were 9.93%, 9.96% and 14.63%, respectively. These levels are well in excess of the required 4.0%, 4.0% and 8.0% ratios required by the Federal Reserve Board. ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Not applicable. 11 TRI-COUNTY FINANCIAL CORPORATION -------------------------------- PART II - OTHER INFORMATION ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K A. Exhibits. Not Applicable B. During the quarter for which this Form 10-Q is being filed, the registrant did not file any current reports on Form 8-K. 12 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 FINANCIAL CORPORATION: Date: May __, 2002 By:/s/ Michael L. Middleton ---------------------------------------- Michael L. Middleton, President and Chairman of the Board Date: May __, 2002 By:/s/ William J. Pasenelli ---------------------------------------- William J. Pasenelli, Executive Vice President and Chief Financial Officer 13 -----END PRIVACY-ENHANCED MESSAGE-----