##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended June 30, 2007
 OR
 o
    
    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
  Maryland
    
    52-1652138(State of other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 3035 Leonardtown Road, Waldorf, Maryland 20601
 (301) 843-0854
 Not applicable
 þ o
  o o þ
 o þ




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##### 



TRI-COUNTY FINANCIAL CORPORATION
 FORM 10-Q
 INDEX
 PagePART I  FINANCIAL INFORMATIONItem 1  Financial Statements (Unaudited)Consolidated Balance Sheets  June 30, 2007 and December 31, 2006
    
    
    1Consolidated Statements of Income and Comprehensive Income 
Three and Six Months Ended June 30, 2007 and 2006
    
    
    2Consolidated Statements of Cash Flows  Six Months Ended June 30,
2007 and 2006
    
    
    4Notes to Consolidated Financial Statements
    
    
    6Item 2
 Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    9Item 3  Quantitative and Qualitative Disclosures about Market Risk
    
    
    19Item 4  Controls and Procedures
    
    
    20PART II  OTHER INFORMATIONItem 1  Legal Proceedings
    
    
    21Item 1.A  Risk Factors
    
    
    21Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    21Item 3  Defaults Upon Senior Securities
    
    
    21Item 4  Submission of Matters to a Vote of Security Holders
    
    
    22Item 5  Other Information
    
    
    22Item 6  Exhibits
    
    
    22SIGNATURES
    
    
    23EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32 SECTION 906 CERTIFICATIONS OF THE CEO AND CFO




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##### Table of Contents



PART I FINANCIAL INFORMATION
 
 ITEM I. FINANCIAL STATEMENTS
 TRI-COUNTY FINANCIAL CORPORATION
 
 CONSOLIDATED BALANCE SHEETS JUNE 30, 2007 AND DECEMBER 31, 2006 (UNAUDITED)
 June 30, 2007
    
    
    December 31, 2006ASSETSCash and due from banks
    
    $
    1,964,093
    
    
    $
    3,157,595Federal Funds sold
    
    
    608,603
    
    
    
    772,351Interest-bearing deposits with banks
    
    
    7,654,096
    
    
    
    14,260,560Securities available for sale
    
    
    8,869,828
    
    
    
    9,301,676Securities held to maturity  at amortized cost
    
    
    90,309,368
    
    
    
    97,804,849Federal Home Loan Bank and Federal Reserve Bank stock  at cost
    
    
    5,580,400
    
    
    
    6,100,400Loans receivable  net of allowance for loan losses
of $4,046,534 and $3,783,721, respectively
    
    
    440,971,334
    
    
    
    422,479,799Premises and equipment, net
    
    
    8,145,563
    
    
    
    6,822,461Foreclosed real estate
    
    
    460,884
    
    
    
    460,884Accrued interest receivable
    
    
    3,064,462
    
    
    
    2,837,413Investment in bank owned life insurance
    
    
    9,928,457
    
    
    
    8,762,761Other assets
    
    
    3,299,905
    
    
    
    2,735,265TOTAL ASSETS
    
    $
    580,856,993
    
    
    $
    575,496,014LIABILITIES AND STOCKHOLDERS EQUITYLIABILITIES:Noninterest-bearing deposits
    
    $
    49,014,911
    
    
    $
    43,723,436Interest-bearing deposits
    
    
    384,431,258
    
    
    
    374,289,966Total deposits
    
    
    433,446,169
    
    
    
    418,013,402Short-term borrowings
    
    
    5,554,621
    
    
    
    6,567,702Long-term debt
    
    
    86,025,924
    
    
    
    96,045,936Guaranteed preferred beneficial interest in junior
subordinated debentures
    
    
    12,000,000
    
    
    
    12,000,000Accrued expenses and other liabilities
    
    
    4,913,692
    
    
    
    5,139,637Total liabilities
    
    
    541,940,406
    
    
    
    537,766,677STOCKHOLDERS EQUITY:Common stock
 par value $.01; authorized  15,000,000 shares;
issued 2,647,003 and 2,642,288 shares, respectively
    
    
    26,473
    
    
    
    26,423Additional paid in capital
    
    
    9,574,890
    
    
    
    9,499,946Retained earnings
    
    
    29,567,273
    
    
    
    28,353,792Accumulated other comprehensive loss
    
    
    (184,274
    )
    
    
    (53,822
    )Unearned ESOP shares
    
    
    (67,775
    )
    
    
    (97,002
    )Total stockholders equity
    
    
    38,916,587
    
    
    
    37,729,337TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    580,856,993
    
    
    $
    575,496,014
  1




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TRI-COUNTY FINANCIAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
 THREE AND SIX MONTHS ENDED JUNE 30, 2007 AND 2006
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006INTEREST INCOME:Interest and fees on loans
    
    $
    8,330,061
    
    
    $
    7,175,349
    
    
    $
    16,389,202
    
    
    $
    13,838,876Taxable interest and dividends
on investment securities
    
    
    1,372,704
    
    
    
    1,589,901
    
    
    
    2,801,245
    
    
    
    3,181,203Interest on deposits with banks
    
    
    35,122
    
    
    
    62,660
    
    
    
    71,632
    
    
    
    107,790Total interest income
    
    
    9,737,887
    
    
    
    8,827,910
    
    
    
    19,262,079
    
    
    
    17,127,869INTEREST EXPENSE:Interest on deposits
    
    
    3,708,633
    
    
    
    2,766,038
    
    
    
    7,354,736
    
    
    
    5,228,780Interest on short-term borrowings
    
    
    54,342
    
    
    
    322,673
    
    
    
    82,622
    
    
    
    551,168Interest on long-term debt
    
    
    1,176,072
    
    
    
    1,385,212
    
    
    
    2,482,721
    
    
    
    2,739,791Total interest expenses
    
    
    4,939,047
    
    
    
    4,473,923
    
    
    
    9,920,079
    
    
    
    8,519,739NET INTEREST INCOME
    
    
    4,798,840
    
    
    
    4,353,987
    
    
    
    9,342,000
    
    
    
    8,608,130PROVISION FOR LOAN LOSSES
    
    
    97,917
    
    
    
    86,087
    
    
    
    354,443
    
    
    
    172,572NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES
    
    
    4,700,923
    
    
    
    4,267,900
    
    
    
    8,987,557
    
    
    
    8,435,558
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TRI-COUNTY FINANCIAL CORPORATION
 CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
 THREE AND SIX MONTHS ENDED JUNE 30, 2007 AND 2006
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006NONINTEREST INCOME:Loan appraisal, credit, and miscellaneous charges
    
    
    109,088
    
    
    
    135,172
    
    
    
    172,676
    
    
    
    233,789Net gain on the sale of foreclosed property
    
    
    
    
    
    
    
    
    
    
    66,428
    
    
    
    Income from bank owned life insurance
    
    
    83,179
    
    
    
    89,036
    
    
    
    165,696
    
    
    
    159,808Gain on sale of investment securities
    
    
    
    
    
    
    
    
    
    
    16,912
    
    
    
    Service charges
    
    
    360,180
    
    
    
    281,404
    
    
    
    681,428
    
    
    
    589,733Total noninterest income
    
    
    552,447
    
    
    
    505,612
    
    
    
    1,103,140
    
    
    
    983,330NONINTEREST EXPENSE:Salary and employee benefits
    
    
    1,796,606
    
    
    
    1,753,526
    
    
    
    3,680,092
    
    
    
    3,414,897Occupancy
    
    
    345,495
    
    
    
    324,981
    
    
    
    656,925
    
    
    
    604,288Advertising
    
    
    66,646
    
    
    
    100,983
    
    
    
    227,769
    
    
    
    246,191Data processing
    
    
    163,257
    
    
    
    210,339
    
    
    
    350,848
    
    
    
    430,573Legal and professional fees
    
    
    160,617
    
    
    
    309,153
    
    
    
    277,222
    
    
    
    548,167Depreciation of furniture, fixtures, and equipment
    
    
    165,039
    
    
    
    128,931
    
    
    
    284,297
    
    
    
    241,427Telephone communications
    
    
    21,672
    
    
    
    19,222
    
    
    
    44,583
    
    
    
    41,943ATM expenses
    
    
    76,751
    
    
    
    58,855
    
    
    
    143,768
    
    
    
    116,177Office supplies
    
    
    31,616
    
    
    
    33,239
    
    
    
    78,077
    
    
    
    68,950Office equipment
    
    
    14,491
    
    
    
    11,458
    
    
    
    25,701
    
    
    
    24,251Other
    
    
    300,723
    
    
    
    246,926
    
    
    
    634,781
    
    
    
    591,304Total noninterest expenses
    
    
    3,142,913
    
    
    
    3,197,613
    
    
    
    6,404,063
    
    
    
    6,328,168INCOME BEFORE INCOME TAXES
    
    
    2,110,457
    
    
    
    1,575,899
    
    
    
    3,686,634
    
    
    
    3,090,720Income tax expense
    
    
    768,341
    
    
    
    516,964
    
    
    
    1,334,899
    
    
    
    1,058,648NET INCOME
    
    
    1,342,116
    
    
    
    1,058,935
    
    
    
    2,351,735
    
    
    
    2,032,072Other comprehensive income:Unrealized losses on securities available for sale
net of taxes
    
    
    (141,916
    )
    
    
    (46,914
    )
    
    
    (119,752
    )
    
    
    (208,701
    )Less: Reclassification adjustment for gain net of taxes
of $6,122 included in income
    
    
    
    
    
    
    
    
    
    
    (10,790
    )
    
    
    COMPREHENSIVE INCOME
    
    $
    1,200,200
    
    
    $
    1,012,021
    
    
    $
    2,221,193
    
    
    $
    1,823,371EARNINGS PER COMMON SHAREBasic
    
    $
    0.51
    
    
    $
    0.40
    
    
    $
    0.89
    
    
    $
    0.77Diluted
    
    
    0.47
    
    
    
    0.37
    
    
    
    0.83
    
    
    
    0.72
   3




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TRI-COUNTY
FINANCIAL CORPORATION
 
 CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
 SIX MONTHS ENDED JUNE 30, 2007 AND 2006
 Six Months EndedJune 30,2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    2,351,735
    
    
    $
    2,032,072Adjustments to reconcile net income to net
cash provided (used) by operating activities:Provision for loan losses
    
    
    354,443
    
    
    
    172,572Gain on foreclosed real estate
    
    
    (66,428
    )
    
    
    Gain on sales of investment securities
    
    
    (16,912
    )
    
    
    Depreciation and amortization
    
    
    511,130
    
    
    
    455,017Net amortization of premium/discount on investment securities
    
    
    23,461
    
    
    
    13,095Increase in cash surrender of bank owned life insurance
    
    
    (165,696
    )
    
    
    (159,808
    )Deferred income tax (benefit) expense
    
    
    (269,500
    )
    
    
    166,844Increase in accrued interest receivable
    
    
    (227,049
    )
    
    
    (143,051
    )Increase (decrease) in deferred loan fees
    
    
    13,516
    
    
    
    (92,284
    )(Decrease) increase in accounts payable, accrued expenses,
other liabilities
    
    
    (225,944
    )
    
    
    431,778Increase in other assets
    
    
    (227,939
    )
    
    
    (592,814
    )Net cash provided by operating activities
    
    $
    2,054,817
    
    
    $
    2,283,421CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of investment securities available for sale
    
    
    (72,835
    )
    
    
    (3,056,127
    )Proceeds from sale, redemption or principal payments
of investment securities available for sale
    
    
    322,913
    
    
    
    369,077Purchase of investment securities held to maturity
    
    
    (800,000
    )
    
    
    (4,300,000
    )Proceeds from maturities or principal payments
of investment securities held to maturity
    
    
    8,273,048
    
    
    
    14,579,389Net decrease of FHLB and Federal Reserve stock
    
    
    520,000
    
    
    
    31,500Loans originated or acquired
    
    
    (98,872,942
    )
    
    
    (93,286,715
    )Principal collected on loans
    
    
    80,013,448
    
    
    
    58,291,752Purchase of bank owned life insurance
    
    
    (1,000,000
    )
    
    
    (2,000,000
    )Purchase of premises and equipment
    
    
    (1,834,231
    )
    
    
    (541,136
    )Proceeds from foreclosed real estate
    
    
    66,428
    
    
    
    14,677Net cash used in investing activities
    
    $
    (13,384,171
    )
    
    $
    (29,897,583
    )
 4




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##### Table of Contents



TRI-COUNTY
FINANCIAL CORPORATION
 CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
 SIX MONTHS ENDED JUNE 30, 2007 AND 2006
 Six Months EndedJune 30,2007
    
    
    2006CASH FLOWS FROM FINANCING ACTIVITIES:Net increase in deposits
    
    
    15,432,767
    
    
    
    24,714,291Proceeds from long-term debt
    
    
    
    
    
    
    260,000Payments of long-term debt
    
    
    (10,020,012
    )
    
    
    (15,018,207
    )Net (decrease) increase in short-term borrowings
    
    
    (1,013,081
    )
    
    
    12,169,382Exercise of stock options
    
    
    38,183
    
    
    
    81,505Net change in unearned ESOP shares
    
    
    66,068
    
    
    
    73,554Dividends paid
    
    
    (1,062,064
    )
    
    
    (972,966
    )Redemption of common stock
    
    
    (76,221
    )
    
    
    (269,947
    )Net cash provided by financing activities
    
    
    3,365,640
    
    
    
    21,037,612DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (7,963,714
    )
    
    
    (6,576,550
    )CASH AND CASH EQUIVALENTS  JANUARY 1
    
    
    18,190,506
    
    
    
    22,575,240CASH AND CASH EQUIVALENTS  JUNE 30
    
    $
    10,226,792
    
    
    $
    15,998,690SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash paid during the six months for:Interest
    
    $
    9,632,110
    
    
    $
    8,516,751Income taxes
    
    $
    1,782,600
    
    
    $
    1,251,000
  5




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 1.
    
    BASIS OF PRESENTATION
 General
  2.
    
    NATURE OF BUSINESS
  3.
    
    INCOME TAXES
  6




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4.
    
    EARNINGS PER SHARE
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006Basic
    
    
    2,647,558
    
    
    
    2,641,603
    
    
    
    2,645,764
    
    
    
    2,640,787Diluted
    
    
    2,843,404
    
    
    
    2,820,348
    
    
    
    2,836,748
    
    
    
    2,814,387
  5.
    
    STOCK-BASED COMPENSATION
    Weighted
    
    
    
    
    
    
    Weighted-AverageAverage
    
    
    Aggregate
    
    
    Contractual LifeExercise
    
    
    Intrinsic
    
    
    Remaining InShares
    
    
    Price
    
    
    Value
    
    
    YearsOutstanding at December 31, 2006
    
    
    417,097
    
    
    $
    13.86Granted at fair value
    
    
    
    
    
    
    Exercised
    
    
    (5,301
    )
    
    
    7.20Expired
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding at June 30, 2007
    
    
    411,796
    
    
    $
    13.95
    
    
    $
    4,844,544
    
    
    
    5.2Exercisable at June 30, 2007
    
    
    411,796
    
    
    $
    13.95
    
    
    $
    4,844,544
    
    
    
    5.2
  7




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##### Table of Contents



6.
    
    FORECLOSED REAL ESTATE
  7.
    
    NEW ACCOUNTING STANDARDS
 Fair Value Measurements
   8




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ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  GENERAL
      9




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SELECTED FINANCIAL DATA
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006Condensed Income StatementInterest Income
    
    $
    9,737,887
    
    
    $
    8,827,910
    
    
    $
    19,262,079
    
    
    $
    17,127,869Interest Expense
    
    
    4,939,047
    
    
    
    4,473,923
    
    
    
    9,920,079
    
    
    
    8,519,739Net Interest Income
    
    
    4,798,840
    
    
    
    4,353,987
    
    
    
    9,342,000
    
    
    
    8,608,130Provision for Loan Loss
    
    
    97,917
    
    
    
    86,087
    
    
    
    354,443
    
    
    
    172,572Noninterest Income
    
    
    552,447
    
    
    
    505,612
    
    
    
    1,103,140
    
    
    
    983,330Noninterest Expense
    
    
    3,142,913
    
    
    
    3,197,613
    
    
    
    6,404,063
    
    
    
    6,328,168Income Before Income Taxes
    
    
    2,110,457
    
    
    
    1,575,899
    
    
    
    3,686,634
    
    
    
    3,090,720Income Taxes
    
    
    768,341
    
    
    
    516,964
    
    
    
    1,334,899
    
    
    
    1,058,648Net Income
    
    $
    1,342,116
    
    
    $
    1,058,935
    
    
    $
    2,351,735
    
    
    $
    2,032,072Per Common ShareBasic Earnings
    
    $
    0.51
    
    
    $
    0.40
    
    
    $
    0.89
    
    
    $
    0.77Diluted Earnings
    
    $
    0.47
    
    
    $
    0.37
    
    
    $
    0.83
    
    
    $
    0.72Book Value
    
    $
    14.70
    
    
    $
    13.37
    
    
    $
    14.70
    
    
    $
    13.37
  RECENT DEVELOPMENTS
   RESULTS OF OPERATIONS  SIX MONTHS ENDED JUNE 30, 2007
  10




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Six Months Ended June 30,2007
    
    2006
    
    $ Change
    
    % ChangeInterest income
    
    $
    19,262,079
    
    
    $
    17,127,869
    
    
    $
    2,134,210
    
    
    
    12.46
    %Interest expense
    
    
    9,920,079
    
    
    
    8,519,739
    
    
    
    1,400,340
    
    
    
    16.44
    %Net interest income
    
    
    9,342,000
    
    
    
    8,608,130
    
    
    
    733,870
    
    
    
    8.53
    %Provision for loan losses
    
    
    354,443
    
    
    
    172,572
    
    
    
    181,871
    
    
    
    105.39
    %
   Six Months EndedJune 30,2007
    
    
    2006
    
    
    $ Change
    
    
    % ChangeNONINTEREST INCOME:Loan appraisal, credit, and miscellaneous charges
    
    $
    172,676
    
    
    $
    233,789
    
    
    $
    (61,113
    )
    
    
    -26.14
    %Net gain on the sale of foreclosed property
    
    
    66,428
    
    
    
    
    
    
    
    66,428
    
    
    
    NAIncome from bank owned life insurance
    
    
    165,696
    
    
    
    159,808
    
    
    
    5,888
    
    
    
    3.68
    %Gain on sale of investment securities
    
    
    16,912
    
    
    
    
    
    
    
    16,912
    
    
    
    NAService charges
    
    
    681,428
    
    
    
    589,733
    
    
    
    91,695
    
    
    
    15.55
    %Total noninterest income
    
    $
    1,103,140
    
    
    $
    983,330
    
    
    $
    119,810
    
    
    
    12.18
    %
  11




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##### Table of Contents



Six Months EndedJune 30,2007
    
    
    2006
    
    
    $ Change
    
    
    % ChangeNONINTEREST EXPENSE:Salary and employee benefits
    
    $
    3,680,092
    
    
    $
    3,414,897
    
    
    $
    265,195
    
    
    
    7.77
    %Occupancy
    
    
    656,925
    
    
    
    604,288
    
    
    
    52,637
    
    
    
    8.71
    %Advertising
    
    
    227,769
    
    
    
    246,191
    
    
    
    (18,422
    )
    
    
    (7.48
    %)Data processing
    
    
    350,848
    
    
    
    430,573
    
    
    
    (79,725
    )
    
    
    (18.52
    %)Legal and professional fees
    
    
    277,222
    
    
    
    548,167
    
    
    
    (270,945
    )
    
    
    (49.43
    %)Depreciation of furniture,
fixtures, and equipment
    
    
    284,297
    
    
    
    241,427
    
    
    
    42,870
    
    
    
    17.76
    %Telephone communications
    
    
    44,583
    
    
    
    41,943
    
    
    
    2,640
    
    
    
    6.29
    %ATM expenses
    
    
    143,768
    
    
    
    116,177
    
    
    
    27,591
    
    
    
    23.75
    %Office supplies
    
    
    78,077
    
    
    
    68,950
    
    
    
    9,127
    
    
    
    13.24
    %Office equipment
    
    
    25,701
    
    
    
    24,251
    
    
    
    1,450
    
    
    
    5.98
    %Other
    
    
    634,781
    
    
    
    591,304
    
    
    
    43,477
    
    
    
    7.35
    %Total noninterest expense
    
    $
    6,404,063
    
    
    $
    6,328,168
    
    
    $
    75,895
    
    
    
    1.20
    %
   RESULTS OF OPERATIONS  THREE MONTHS ENDED JUNE 30, 2007
  Three Months EndedJune 30,2007
    
    2006
    
    $ Change
    
    % ChangeInterest income
    
    $
    9,737,887
    
    
    $
    8,827,910
    
    
    $
    909,977
    
    
    
    10.31
    %Interest expense
    
    
    4,939,047
    
    
    
    4,473,923
    
    
    
    465,124
    
    
    
    10.40
    %Net interest income
    
    
    4,798,840
    
    
    
    4,353,987
    
    
    
    444,853
    
    
    
    10.22
    %Provision for loan losses
    
    
    97,917
    
    
    
    86,087
    
    
    
    11,830
    
    
    
    13.74
    %
 12




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##### Table of Contents



Three Months EndedJune 30,2007
    
    
    2006
    
    
    $ Change
    
    
    % ChangeNON-INTEREST INCOME:Loan appraisal, credit, and
miscellaneous charges
    
    $
    109,088
    
    
    $
    135,172
    
    
    $
    (26,084
    )
    
    
    (19.30
    %)Income from bank owned life insurance
    
    
    83,179
    
    
    
    89,036
    
    
    
    (5,857
    )
    
    
    (6.58
    %)Service charges
    
    
    360,180
    
    
    
    281,404
    
    
    
    78,776
    
    
    
    27.99
    %Total non-interest income
    
    $
    552,447
    
    
    $
    505,612
    
    
    $
    46,835
    
    
    
    9.26
    %
  Three Months EndedJune 30,2007
    
    
    2006
    
    
    $ Change
    
    
    % ChangeNON-INTEREST INCOME:Salary and employee benefits
    
    $
    1,796,606
    
    
    $
    1,753,526
    
    
    $
    43,080
    
    
    
    2.46
    %Occupancy
    
    
    345,495
    
    
    
    324,981
    
    
    
    20,514
    
    
    
    6.31
    %Advertising
    
    
    66,646
    
    
    
    100,983
    
    
    
    (34,337
    )
    
    
    (34.00
    %)Data processing
    
    
    163,257
    
    
    
    210,339
    
    
    
    (47,082
    )
    
    
    (22.38
    %)Legal and professional fees
    
    
    160,617
    
    
    
    309,153
    
    
    
    (148,536
    )
    
    
    (48.05
    %)Depreciation of furniture,
fixtures, and equipment
    
    
    165,039
    
    
    
    128,931
    
    
    
    36,108
    
    
    
    28.01
    %Telephone communications
    
    
    21,672
    
    
    
    19,222
    
    
    
    2,450
    
    
    
    12.75
    %ATM expenses
    
    
    76,751
    
    
    
    58,855
    
    
    
    17,896
    
    
    
    30.41
    %Office supplies
    
    
    31,616
    
    
    
    33,239
    
    
    
    (1,623
    )
    
    
    (4.88
    %)Office equipment
    
    
    14,491
    
    
    
    11,458
    
    
    
    3,033
    
    
    
    26.47
    %Other
    
    
    300,723
    
    
    
    246,926
    
    
    
    53,797
    
    
    
    21.79
    %Total non-interest expenses
    
    $
    3,142,913
    
    
    $
    3,197,613
    
    
    $
    (54,700
    )
    
    
    (1.71
    %)Income tax expense
    
    
    768,341
    
    
    
    516,964
    
    
    
    251,377
    
    
    
    48.63
    %
  13




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##### Table of Contents



FINANCIAL CONDITION
  June 30, 2007
    
    
    December 31, 2006
    
    
    $ Change
    
    
    % ChangeCash and due from banks
    
    $
    1,964,093
    
    
    $
    3,157,595
    
    
    $
    (1,193,502
    )
    
    
    (37.80
    %)Federal Funds sold
    
    
    608,603
    
    
    
    772,351
    
    
    
    (163,748
    )
    
    
    (21.20
    %)Interest-bearing deposits with banks
    
    
    7,654,096
    
    
    
    14,260,560
    
    
    
    (6,606,464
    )
    
    
    (46.33
    %)Securities available for sale
    
    
    8,869,828
    
    
    
    9,301,676
    
    
    
    (431,848
    )
    
    
    (4.64
    %)Securities held to maturity  at amortized cost
    
    
    90,309,368
    
    
    
    97,804,849
    
    
    
    (7,495,481
    )
    
    
    (7.66
    %)Federal Home Loan Bank and Federal Reserve
Bank stock  at cost
    
    
    5,580,400
    
    
    
    6,100,400
    
    
    
    (520,000
    )
    
    
    (8.52
    %)Loans receivable  net of allowance for loan
losses of $4,046,534 and $3,783,721
respectively
    
    
    440,971,334
    
    
    
    422,479,799
    
    
    
    18,491,535
    
    
    
    4.38
    %Premises and equipment, net
    
    
    8,145,563
    
    
    
    6,822,461
    
    
    
    1,323,102
    
    
    
    19.39
    %Foreclosed real estate
    
    
    460,884
    
    
    
    460,884
    
    
    
    
    
    
    
    0.00
    %Accrued interest receivable
    
    
    3,064,462
    
    
    
    2,837,413
    
    
    
    227,049
    
    
    
    8.00
    %Investment in bank owned life insurance
    
    
    9,928,457
    
    
    
    8,762,761
    
    
    
    1,165,696
    
    
    
    13.30
    %Other assets
    
    
    3,299,905
    
    
    
    2,735,265
    
    
    
    564,640
    
    
    
    20.64
    %TOTAL ASSETS
    
    $
    580,856,993
    
    
    $
    575,496,014
    
    
    $
    5,360,979
    
    
    
    0.93
    %
  14




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##### Table of Contents



June 30, 2007
    
    
    December 31, 2006Amount
    
    
    %
    
    
    Amount
    
    
    %Real Estate LoansCommercial
    
    $
    173,748,965
    
    
    
    39.00
    %
    
    $
    177,923,349
    
    
    
    41.69
    %Residential first mortgages
    
    
    84,362,970
    
    
    
    18.94
    %
    
    
    80,781,271
    
    
    
    18.93
    %Residential construction
    
    
    64,363,379
    
    
    
    14.45
    %
    
    
    42,746,306
    
    
    
    10.02
    %Second mortgage loans
    
    
    24,088,633
    
    
    
    5.41
    %
    
    
    24,572,235
    
    
    
    5.76
    %Commercial lines of credit
    
    
    74,267,667
    
    
    
    16.67
    %
    
    
    79,629,910
    
    
    
    18.66
    %Consumer loans
    
    
    2,624,271
    
    
    
    0.59
    %
    
    
    2,812,945
    
    
    
    0.66
    %Commercial equipment
    
    
    22,065,833
    
    
    
    4.95
    %
    
    
    18,287,839
    
    
    
    4.29
    %445,521,719
    
    
    
    100.00
    %
    
    
    426,753,855
    
    
    
    100.00
    %Less:Deferred loan fees
    
    
    503,850
    
    
    
    0.11
    %
    
    
    490,335
    
    
    
    0.11
    %Allowance for loan loss
    
    
    4,046,534
    
    
    
    0.91
    %
    
    
    3,783,721
    
    
    
    0.89
    %4,550,384
    
    
    
    
    
    
    
    4,274,056$
    440,971,334
    
    
    
    
    
    
    $
    422,479,799
   Six Months Ended
    
    
    Six Months EndedJune 30, 2007
    
    
    June 30, 2006Beginning Balance
    
    $
    3,783,721
    
    
    $
    3,383,334Charge Offs
    
    
    91,825
    
    
    
    6,636Recoveries
    
    
    194
    
    
    
    Net Charge Offs
    
    
    91,631
    
    
    
    6,636Additions Charged to Operations
    
    
    354,444
    
    
    
    172,572Balance at the end of the Period
    
    $
    4,046,534
    
    
    $
    3,549,270
 15




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##### Table of Contents



June 30, 2007
    
    
    December 31, 2006Accruing loans which are contractually
past due 90 days or more
    
    $
    
    
    
    $
    Loans accounted for on a non-accrual
basis
    
    $
    612,878
    
    
    $
    1,046,423Total non-performing loans
    
    $
    612,878
    
    
    $
    1,046,423Non-performing loans to total loans
    
    
    0.14
    %
    
    
    0.25
    %Allowance for loan losses to non-
performing loans
    
    
    660.25
    %
    
    
    361.59
    %
   June 30, 2007
    
    
    December 31, 2006
    
    
    $ Change
    
    
    % ChangeNoninterest-bearing deposits
    
    $
    49,014,911
    
    
    $
    43,723,436
    
    
    $
    5,291,475
    
    
    
    12.10
    %Interest-bearing deposits
    
    
    384,431,258
    
    
    
    374,289,966
    
    
    
    10,141,292
    
    
    
    2.71
    %Total deposits
    
    
    433,446,169
    
    
    
    418,013,402
    
    
    
    15,432,767
    
    
    
    3.69
    %Short-term borrowings
    
    
    5,554,621
    
    
    
    6,567,702
    
    
    
    (1,013,081
    )
    
    
    (15.43
    %)Long-term debt
    
    
    86,025,924
    
    
    
    96,045,936
    
    
    
    (10,020,012
    )
    
    
    (10.43
    %)Guaranteed preferred beneficial
interest in junior subordinated
debentures
    
    
    12,000,000
    
    
    
    12,000,000
    
    
    
    
    
    
    
    0.00
    %Accrued expenses and other liabilities
    
    
    4,913,692
    
    
    
    5,139,637
    
    
    
    (225,945
    )
    
    
    (4.40
    %)Total liabilities
    
    $
    541,940,406
    
    
    $
    537,766,677
    
    
    $
    4,173,729
    
    
    
    .78
    %
  Stockholders Equity
 June 30, 2007
    
    
    December 31, 2006
    
    
    $ Change
    
    
    % ChangeCommon stock
    
    $
    26,473
    
    
    $
    26,423
    
    
    $
    50
    
    
    
    0.19
    %Additional paid in capital
    
    
    9,574,890
    
    
    
    9,499,946
    
    
    
    74,944
    
    
    
    0.79
    %Retained earnings
    
    
    29,567,273
    
    
    
    28,353,792
    
    
    
    1,213,481
    
    
    
    4.28
    %Accumulated other comprehensive loss
    
    
    (184,274
    )
    
    
    (53,822
    )
    
    
    (130,452
    )
    
    
    242.38
    %Unearned ESOP shares
    
    
    (67,775
    )
    
    
    (97,002
    )
    
    
    29,227
    
    
    
    (30.13
    %)Total stockholders equity
    
    $
    38,916,587
    
    
    $
    37,729,337
    
    
    $
    1,187,250
    
    
    
    3.15
    %
 16




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
      17




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##### Table of Contents



REGULATORY MATTERS
  CRITICAL ACCOUNTING POLICIES
      18




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 Asset/Liability Risk Management
    Projected Percentage change in Net Interest Income at June 30, 2007
 +200
    
    +100
    
    
    
    -100
    
    -200Basis points
    
    Basis points
    
    No Change
    
    Basis points
    
    Basis points(2.19)%
    
    (0.58)%
    
    0.00%
    
    (0.43)%
    
    (4.81)%
  19




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
   20




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1  Legal Proceedings 
 
 Item 1A  Risk Factors 
 
 Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
 (a)
    
    Not applicable(b)
    
    Not applicable(c)
    
    The following table sets forth information regarding the Companys repurchases of its common
stock during the quarter ended June 30, 2007.
 (c)Total Numberof Shares
    
    (d)Purchased
    
    Maximum(a)
    
    
    
    
    
    as Part of
    
    Number of SharesTotal
    
    (b)
    
    Publicly
    
    that May Yet BeNumber of
    
    Average
    
    Announced Plans
    
    Purchased UnderShares
    
    Price Paid
    
    or
    
    the Plans orPeriod
    
    Purchased
    
    per Share
    
    Programs
    
    ProgramsApril 2007
    
    
    
    1,245
    
    $
    
    25.00
    
    
    
    1,245
    
    
    
    61,934May 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61,934June 2007
    
    
    
    1,200
    
    
    
    26.00
    
    
    
    1,200
    
    
    
    60,734Total
    
    
    
    2,445
    
    $
    
    25.49
    
    
    
    2,445
  
 Item 3  Default Upon Senior Securities 
 21




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##### Table of Contents



Item 4  Submission of Matters to a Vote of Security Holders 
 
 Item 5  Other Information 
 
 Item 6  Exhibits
    22




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##### Table of Contents



SIGNATURES
  TRI-COUNTY FINANCIAL
CORPORATIONDate: August 6, 2007
    By:
    /s/ Michael L. MiddletonMichael L. MiddletonPresident, Chief Executive Officer and
Chairman of the Board Date: August 6, 2007
    By:
    /s/ William J. PasenelliWilliam J. PasenelliExecutive Vice President and
Chief Financial Officer 23