FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-9785
TRI CITY BANKSHARES CORPORATION
(Exact name of registrant as specified in its charter)
Wisconsin 39-1158740
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(State or other jurisdiction (IRS Employer ID Number)
of incorporation or organization)
6400 S. 27th Street, Oak Creek, WI
(Address of principal executive offices)
53154
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Zip Code
(414) 761-1610
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(Registrant's telephone number, including area code)
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
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The number of shares outstanding of $1.00 par value common stock, as of
March 31, 2000: 2,544,077 shares
7
FORM 10-Q
TRI CITY BANKSHARES CORPORATION
INDEX
PART I - FINANCIAL INFORMATION
Page #
Item 1 Financial Statements (Unaudited)
Consolidated Balance Sheets as of
March 31, 2000 and December 31, 1999 3
Consolidated Statements of Income
for the Three Months ended March 31, 2000
and 1999 4
Consolidated Statements of Cash Flows
for the Three Months ended March 31, 2000
and 1999 5
Notes to Unaudited Consolidated Financial
Statements 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7
Item 3 Quantitative and Qualitative Disclosure about
Market Risk 13
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 14
Signatures 15
TRI CITY BANKSHARES CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31,
2000 1999
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ASSETS
Cash and due from banks $ 31,602,811 $ 42,781,918
Federal funds sold 81,020,000 2,700,000
------------- -------------
Cash and cash equivalents 112,622,811 45,481,918
Investment securities:
Held-to-maturity (fair
value of: 2000 - 134,165,983
1999 - 139,237,806) 137,589,554 142,022,068
Loans 328,965,329 318,899,435
Allowance for loan losses (4,360,853) (4,340,357)
Net Loans ------------- --------------
324,604,476 314,559,078
Premises and equipment 20,771,836 20,824,179
Other assets 4,603,559 6,303,572
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TOTAL ASSETS $ 600,192,236 $ 529,190,815
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 137,664,266 $ 128,079,686
Interest bearing (over $100,000) 27,524,000 26,092,149
Interest bearing 289,501,438 305,298,102
------------- -------------
Total Deposits 454,689,704 459,469,937
Short-term borrowings:
Federal funds purchased and
securities sold under
agreements to repurchase 76,891,034 0
Other Borrowings 2,038,464 4,579,060
------------- -------------
Total Short Term Borrowings 78,929,498 4,579,060
Other Liabilities 1,963,351 2,016,985
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TOTAL LIABILITIES 535,582,553 466,065,982
Stockholders' equity:
Cumulative Preferred stock, par
value -$1 per share authorized
- 200,000 shares; issued and
outstanding-none
Common stock, par value-$1 per share
authorized-5,000,000 shares issued
and outstanding:2000 - 2,544,077 shares;
1999- 2,538,232 shares 2,544,077 2,538,232
Additional paid in capital 10,545,465 10,335,369
Retained earnings 51,520,141 50,251,232
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TOTAL STOCKHOLDERS' EQUITY 64,609,683 63,124,833
------------- -------------
$ 600,192,236 $ 529,190,815
============= =============
See Notes to Unaudited Consolidated Financial Statements.
TRI CITY BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
2000 1999
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Interest income:
Loans, including fees $ 7,004,782 $ 6,148,030
Investment securities:
Taxable 899,491 967,013
Exempt from federal income tax 917,680 894,141
Federal funds sold 17,823 145,010
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TOTAL INTEREST INCOME 8,839,776 8,154,194
Interest expense:
Deposits 2,692,849 2,614,343
Short-term borrowings 190,417 21,813
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TOTAL INTEREST EXPENSE 2,883,266 2,636,156
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NET INTEREST INCOME 5,956,510 5,518,038
Provision for loan losses (75,000) (75,000)
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 5,881,510 5,443,038
Other income:
Service charge income 769,734 769,283
Rental income 246,241 245,561
Other 1,329,032 595,200
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TOTAL OTHER INCOME 2,345,007 1,610,044
Other expense:
Salaries and employee benefits 2,919,702 2,711,363
Net occupancy 731,648 682,806
Equipment 326,477 365,303
Data processing 279,318 247,461
Advertising 153,071 123,300
Regulatory agency assessments 50,714 40,163
Office supplies 156,960 159,439
Other 615,335 682,252
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TOTAL OTHER EXPENSE 5,233,225 5,012,087
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Income before income taxes 2,993,292 2,040,995
Provision for income taxes 836,000 442,000
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NET INCOME $ 2,157,292 $ 1,598,995
=========== ===========
Per share data:
Net income $ 0.85 $ 0.63
Common stock investment $ 25.41 $ 23.58
Dividends $ 0.350 $ 0.30
Average shares outstanding 2,542,922 2,523,686
See Notes to Unaudited Consolidated Financial Statements.
TRI CITY BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
2000 1999
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OPERATING ACTIVITIES
Net income $ 2,157,292 $ 1,598,995
Adjustments to reconcile net income to
net cash provided by operating activities:
Proceeds from sale of loans
held for sale 841,180 6,984,590
Origination of loans held
for sale (841,180) (6,984,590)
Amortization of investment
securities premiums and
accretion of discounts 59,281 33,427
Provision for loan losses 75,000 75,000
Provision for depreciation 468,753 477,941
Increase in interest receivable (167,976) (467,224)
Decrease in interest payable (13,422) (59,476)
Other 1,827,775 222,385
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NET CASH PROVIDED BY
OPERATING ACTIVITIES 4,406,703 1,881,048
INVESTING ACTIVITIES
Proceeds from maturities and redemptions
of investment securities 4,373,235 6,968,850
Purchase of investment securities 0 (27,014,533)
Net increase in loans (10,120,398) (214,931)
Purchases of premises and equipment (416,410) (848,137)
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (6,163,573) (21,108,751)
FINANCING ACTIVITIES
Net decrease in deposits (4,780,233) (14,974,039)
Net increase in short-term
borrowings 74,350,438 333,398
Sale of Common Stock 215,941 154,323
Cash dividends 888,383) (756,070)
------------ ------------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 68,897,763 (15,242,388)
------------ ------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 67,140,893 (34,470,091)
Cash and cash equivalents at the
beginning of the period 45,481,918 76,201,647
------------ ------------
CASH AND CASH EQUIVALENTS
AT THE END OF THE PERIOD $ 12,622,811 $ 41,731,556
============ ============
See Notes to Unaudited Consolidated Financial Statements.
TRI CITY BANKSHARES CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(A) BASIS OF PRESENTATION
- --------------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
in the United States for complete financial statements. These financial
statements should be read in conjunction with the financial statements and the
notes thereto included in the Annual Report on Form 10-K of Tri City Bankshares
Corporation ("Tri City") for the year ended December 31, 1999. The December 31,
1999 financial information included herein is derived from the December 31, 1999
Consolidated Balance Sheet of Tri City which is included in the aforesaid Annual
Report on Form 10-K.
In the opinion of Tri City's Management, the accompanying unaudited
consolidated financial statements contain all adjustments, consisting of normal
recurring accruals, necessary to present fairly Tri City's financial position
as of March 31, 2000 and the results of its operations and cash flows for the
three month periods ended March 31, 2000 and 1999. The preparation of
financial statements requires management to make estimates and assumptions that
affect the recorded amounts of assets and liabilities and the reported amounts
of revenues and expenses during the reported period. The operating results for
the first three months of 2000 are not necessarily indicative of the results
which may be expected for the entire 2000 fiscal year.
TRI CITY BANKSHARES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion contains certain "forward-looking statements,"
including statements concerning objectives and future events or performance, and
other statements which are other than historical fact. Factors which may cause
actual results to differ materially from those contemplated by such
forward-looking statements include, but are not limited to, the following
possibilities: (i) lower than anticipated loan and deposit growth due to a
variety of factors, including changes in the interest rate environment and an
increase in competitive pressures in the banking and financial services
industry; (ii) insufficient reserves for loan losses; (iii) poorer than expected
general economic conditions; (iv) legislation or regulatory changes which
adversely affect the banking industry; and (v) other unanticipated occurrences.
CHANGES IN FINANCIAL POSITION
- -----------------------------
Tri City Bankshares Corporation's (the "Corporation") total assets for the first
quarter of 2000, increased $71.0 million (13.4%) compared to a decrease of $12.6
million (2.5%) in the first quarter of 1999. Cash and cash equivalents increased
$67.1 million (147.6%) during the first three months of 2000 compared to a
decrease of $34.5 million (45.2%) during the same period in 1999. On the last
day of the quarter, the corporation's banking subsidiary entered into several
short-term funding agreements totaling $77.0 million. The Corporation's banking
subsidiary sold securities under agreements to repurchase and temporarily
invested in federal funds sold.
Investment securities decreased $4.4 million (3.1%) during the first three
months of 2000 compared to an increase of $19.0 million (14.1%) during the first
three months of 1999. Investment securities which have matured were not replaced
with like securities. The yields on the available securities were low and
management did not want to lower the overall yield on investments. They directed
the funds from matured securities into the loan portfolio, which produces a
higher yield. Loan demand has been good in the first quarter, and management
plans to increase the Corporation's loan to deposit ratio resulting in an
increase to the overall yield on investments.
Loan balances increased $10.1 million (3.2%) compared to an increase of $1.2
million (0.4%) during the three month periods ended March 31, 2000 and 1999,
respectively. Management is primarily concerned with maintaining quality
investment and loan portfolios, their ultimate concern, however, is to maintain
these quality assets and to increase overall profits for the Corporation without
undue risk. Management has continued to build its customer base by providing not
only competitive products but also providing individual service most customers
demand. The Corporation offers a variety of loan packages to its customers and
thus hopes to maintain customer loyalty and satisfaction. The allowance for loan
losses increased $20,500(0.5%) during the first quarter of 2000 compared to an
increase of $41,500(1.0%) during the first quarter of 1999.
Deposits of the Corporation decreased $4.8 million (1.0%) during the first three
months of 2000 compared to a decrease of $15.0 million (3.3%) in the first three
months of 1999. Interest rates have begun to rise in anticipation of
inflationary increases. Consumers will try to maximize their income and move
funds into higher yielding investments without tying up their money long term.
Management has offered savings instruments that are short term in nature but
offer a higher yield to the customer in order to maintain the deposits in the
Corporation. Although deposits as of March 31, 2000 have decreased from year-end
totals, the average balance of deposits during the first quarter of 2000
increased $450,000(0.1%).
Equity of the Corporation has increased $1.5 million (2.4%) during the first
quarter of 2000 compared to an increase of $997,200(1.7%) during the first
quarter of 1999.
LIQUIDITY
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The ability to provide the necessary funds for the day-to-day operations of the
Corporation depend on a sound liquidity position. Management has continued to
monitor the Corporation's liquidity position by reviewing the maturity
distribution between interest earning assets and interest bearing liabilities.
Fluctuations in interest rates can be the primary cause for the flow of funds
into or out of a financial institution. The Corporation continues to offer
products that are competitive and will encourage depositors to leave their funds
in the Corporation's banking subsidiary. Management believes that their efforts
will help the Corporation to not only retain these deposits but also encourage
continued growth. In the event the Corporation's primary source of liquidity,
the core deposits of its banking subsidiary, is insufficient to meet liquidity
needs, the banking subsidiary has available to meet demand $35.0 million in
federal funds purchased facilities as well as $38.0 million reverse repurchase
agreement facility through its correspondent bank relationship. As an additional
source of liquidity the Corporation's banking subsidiary established a credit
facility in the amount of $23.8 million Federal Reserve Bank of Chicago Loan and
Discount Window.
CAPITAL RESOURCES
- -----------------
During the first quarter of 2000, the Corporation completed its acquisition of a
building in southeastern Milwaukee County. Management plans on establishing a
new brick and mortar branch of its subsidiary bank in order to better serve its
customers in this area. The cost of this remodeling will be funded internally
and is expected to be about $900,000.
Although management continually examines ways in which to provide better
customer service or to help in the expansion of the Corporation, there are no
other major projects planned for the current year. However, if the opportunity
presents itself, management of the Corporation will pursue such opportunities if
they are in the best interests of the Corporation.
RESULTS OF OPERATIONS
- ---------------------
During the first three months of 2000, net income increased $558,300(34.9%)
compared to an increase of $3,000(0.2%) during the first three months of 1999.
Interest income and fees on loans increased $856,800(13.9%) during the first
quarter of 2000 compared to a decrease of $200,000(3.2%) during the first
quarter of 1999. Management has been working to build the Corporation's loan
portfolio. Although growth is important, there has been a diligent effort to
maintain the quality of the portfolio through the efforts of the Senior and
Executive Loan Committees. Through careful scrutiny of each loan, they have been
able to maintain a low non-performing loan ratio for the Corporation, currently
at 0.18% of total loans. Since rates have increased, placing funds in the loan
market derives a higher yield than investing in securities.
Interest income on investment securities has decreased $44,000(2.4%) in the
first quarter of 2000 compared to an increase of $195,100(11.7%) in the first
quarter of 1999. Management feels that funds should be channeled into the areas
that will provide the Corporation the maximum yield while still maintaining a
sound investment portfolio. The Corporation does not invest in derivatives or
any other other hedging investments in order to maximize profits. Management
tries to obtain the best yield they can from their investment decisions and
still keep the assets of the Corporation from experiencing large fluctuations in
valuation. Interest income on borrowed funds decreased $127,200(87.7%) during
the first three months of 2000 compared to an increase of $107,000(6.3%) in the
first three months of 1999. This is a short-term investment until a suitable
longer-term instrument becomes available.
The Corporation sold its unconsolidated investment in the First National Bank of
Eagle River in Eagle River, Wisconsin during the first quarter of 2000. The gain
realized on this sale accounted for $810,000 of pre-tax income and $490,000
after the provision for income taxes and is included in other income.
Interest expense on deposits increased $78,500(3.0%) in the first quarter of
2000 compared to an increase of $13,800(0.5%) in the first three months of 1999.
Although deposit balances decreased $4.8 million during the first three months
of 2000, they have increased $20.1 million since March 31, 1999. This increase
is primarily responsible for the increase in interest expense since the average
yield on deposits is 3.57% the first quarter of 2000 compared to a 3.53% rate
the first quarter of 1999. Interest expense on borrowed funds increased
$168,600(773.0%) during the first quarter of 2000 compared to a decrease of
$90,600(80.6%) in the first quarter of 1999. The Corporation was in a borrowed
position during most of the three-month period ended March 31, 2000 in order to
meet customer loan demand.
Other expenses increased $221,000 (4.4%) during the first three months of 2000
compared to an increase of $261,400 (5.5%) during the first three months of
1999. The increase is primarily the result of increases in employee compensation
$208,300. The expense is justified and necessary in the opinion of management in
an effort to attract and retain qualified staff during this period of rising
employment costs.
Income tax provisions equaled 27.93% and 21.66% of income before income taxes
for the three month period ended March 31, 2000 and 1999, respectively. This
increase in the effective tax rate is primarily a result of the gain on the sale
of the investment in the First National Bank of Eagle River which is taxed at
the statutory rate of 39.2%.
A summarized change in income for the quarters appears below:
Three Months Ended March 31, March 31, 2000
2000 1999 Over(Under)
(unaudited) (unaudited) 1999
------ ------ ------
Revenue and Expenses: (000's)
Interest Income $8,840 $8,154 $ 686
Less: Interest Expense 2,883 2,636 247
------ ------ ------
Net Interest Income 5,957 5,518 439
Provision for Loan Loss 75 75 0
Other Operating
Expense
Net of Other Operating
Revenues 2,889 3,402 (513)
------ ------ ------
Income Before Income Taxes 2,993 2,041 952
Tax Provision 836 442 394
------ ------ ------
NET INCOME $2,157 $1,599 $ 558
====== ====== ======
CAPITAL ADEQUACY
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Federal banking regulatory agencies have established capital adequacy rules
which take into account risk attributable to balance sheet assets and
off-balance-sheet activities. All banks and bank holding companies must meet a
minimum risk-based capital ratio of 8.0% of which 4.0% must be comprised of tier
1 capital.
The federal banking agencies also have adopted leverage capital guidelines which
banking organizations must meet. Under these guidelines, the most highly rated
banking organizations must meet a minimum leverage ratio of at least 3.0% tier 1
capital to total assets, while lower rated banking organizations must maintain a
ratio of at least 4.0% to 5.0%.
The risk-based capital ratio for the Corporation is 17.47% and its leverage
ratio is 12.41%.
QUANTITATIVE AND QUALTATIVE DISCLOSURES ABOUT MARKET RISK
- ---------------------------------------------------------
The Corporation's Annual Report on Form 10-K for the year ended December
31, 1999, contains certain disclosures about market risks affecting the
Corporation. There have been no material changes to the information provided
which would require additional disclosures as of the date of this filing.
PART II - OTHER INFORMATION
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Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
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27 Financial Data Schedule
(b) Reports on Form 8-K
None
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 CITY BANKSHARES CORPORATION
DATE: May 10, 2000 /s/Henry Karbiner, Jr.
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Henry Karbiner, Jr.
President, Chief Executive Officer
and Treasurer
DATE: May 10, 2000 /s/Thomas W. Vierthaler
---------------- ----------------------------------
Thomas W. Vierthaler
Vice President and Comptroller
(Chief Accounting Officer)
EXHIBIT INDEX
Exhibit Number Description
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27 Financial Data Schedule