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 September 30, 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 of (IRS Employer ID Number)
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
September 30, 2000: 2,562,794.
16
FORM 10-Q
TRI CITY BANKSHARES CORPORATION
INDEX
PART I - FINANCIAL INFORMATION Page #
Item 1 Financial Statements (Unaudited)
Consolidated Balance Sheets as of
September 30, 2000 and December 31, 1999 3
Consolidated Statements of Income
for the Three Months ended September 30,
2000 and 1999 4
Consolidated Statements of Income
for the Nine Months ended September 30,
2000 and 1999 5
Consolidated Statements of Cash Flows
for the Nine Months ended September 30, 2000
and 1999 6
Notes to Unaudited Consolidated Financial
Statements 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
Item 3 Quantitative and Qualitative
Market Risk Disclosure 14
PART II - OTHER INFORMATION
Items 6 Exhibits and Reports on Form 8-K 15
Signatures 16
TRI CITY BANKSHARES CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
ASSETS September 30, December 31,
2000 1999
Cash and due from banks $ 28,660,784 $ 42,781,918
Federal funds sold 0 2,700,000
--------------- ---------------
Cash and cash equivalents 28,660,784 45,481,918
Investment securities:
Held-to-maturity (fair
value of 2000 - 133,942,334
1999 - 139,237,806) 135,468,379 142,022,068
Loans 356,897,577 318,899,435
Allowance for loan losses (4,518,605) (4,340,357)
--------------- --------------
Net Loans 352,378,972 314,559,078
Premises and equipment 20,788,593 20,824,179
Other assets 4,790,201 6,303,572
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TOTAL ASSETS $ 542,086,929 $ 529,190,815
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 127,302,385 $ 128,079,686
Interest bearing (over $100,000) 24,663,000 26,092,149
Interest bearing 275,357,284 305,298,102
--------------- --------------
Total Deposits 427,322,669 459,469,937
Short-term borrowings:
Federal funds purchased and securities
sold under agreements to repurchase 42,104,811 0
Other 3,098,553 4,579,060
--------------- --------------
Total short-term borrowings 45,203,364 4,579,060
Other Liabilities 2,253,706 2,016,985
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TOTAL LIABILITIES 474,779,739 466,065,982
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 - 2,562,794 shares;
1999 - 2,538,232 shares 2,562,794 2,538,232
Additional paid in capital 11,251,665 10,335,369
Retained earnings 53,492,731 50,251,232
--------------- --------------
TOTAL STOCKHOLDERS' EQUITY 67,307,190 63,124,833
--------------- --------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 542,086,929 $ 529,190,815
=============== ==============
See Notes to Unaudited Consolidated Financial Statements.
TRI CITY BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
2000 1999
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Interest income:
Loans, including fees $ 8,032,995 $ 6,676,812
Investment securities:
Taxable 732,573 992,297
Exempt from federal income tax 1,012,312 969,240
Federal funds sold 222,215 9,556
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TOTAL INTEREST INCOME 10,000,095 8,647,905
Interest expense:
Deposits 2,785,484 2,616,124
Short-term borrowings 787,861 205,928
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TOTAL INTEREST EXPENSE 3,573,345 2,822,052
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NET INTEREST INCOME 6,426,750 5,825,853
Provision for loan losses (75,000) (75,000)
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 6,351,750 5,750,853
Other income:
Service charge income 712,456 872,738
Rental income 235,731 238,488
Other 602,376 612,785
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TOTAL OTHER INCOME 1,550,563 1,724,011
Other expense:
Salaries and employee benefits 2,935,060 2,790,611
Net occupancy 722,735 809,688
Equipment 367,243 240,651
Data processing 289,525 274,450
Advertising 203,203 208,293
Regulatory agency assessments 52,667 39,983
Office supplies 151,580 141,807
Other 582,291 704,437
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TOTAL OTHER EXPENSE 5,304,304 5,209,920
Income before income taxes 2,598,009 2,264,944
Provision for income taxes 684,000 528,000
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NET INCOME $ 1,914,009 $ 1,736,944
============= =============
Per share data:
Net income $ 0.75 $ 0.69
Average shares outstanding 2,559,943 2,532,856
See Notes to Unaudited Consolidated Financial Statements
TRI CITY BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
2000 1999
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Interest income:
Loans, including fees $ 22,544,282 $ 19,059,203
Investment securities:
Taxable 2,495,140 2,958,381
Exempt from federal income tax 2,838,765 2,849,609
Federal funds sold 864,327 184,176
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TOTAL INTEREST INCOME 28,742,514 25,051,369
Interest expense:
Deposits 8,244,615 7,836,535
Short-term borrowings 1,834,091 283,441
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TOTAL INTEREST EXPENSE 10,078,706 8,119,976
NET INTEREST INCOME 18,663,808 16,931,393
Provision for loan losses (225,000) (225,000)
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 18,438,808 16,706,393
Other income:
Service charge income 2,230,756 2,460,246
Rental income 724,890 724,026
Gain on Sale of Loans 8,672 31,794
Other 2,518,431 1,997,920
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TOTAL OTHER INCOME 5,482,749 5,213,986
Other expense:
Salaries and employee benefits 8,786,272 8,207,831
Net occupancy 2,198,805 2,180,734
Equipment 1,059,868 962,317
Data processing 852,632 809,510
Advertising 500,294 492,848
Regulatory agency assessments 154,961 120,747
Office supplies 428,452 500,344
Other 1,855,586 2,080,615
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TOTAL OTHER EXPENSE 15,836,870 15,354,946
Income before income taxes 8,084,687 6,565,433
Provision for income taxes 2,172,000 1,492,000
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NET INCOME $ 5,912,687 $ 5,073,433
============= ============
Per share data:
Net income $ 2.32 $ 2.01
Common stock investment $ 26.39 $ 24.44
Dividends $ 1.050 $ 0.900
Average shares outstanding 2,550,492 2,528,227
See Notes to Unaudited Consolidated Financial Statements.
TRI CITY BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
2000 1999
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OPERATING ACTIVITIES
Net income $ 5,912,687 $ 5,073,433
Adjustments to reconcile net
income to net cash provided
by operating activities:
Proceeds from sale of loans
held for sale 3,472,010 13,170,090
Origination of loans held
for sale (3,472,010) (13,170,090)
Amortization of investment
securities premiums and
accretion of discounts 168,807 154,778
Provision for loan losses 225,000 225,000
Provision for depreciation 1,406,259 1,405,437
Increase in interest receivable (359,005) (315,279)
Decrease in interest payable (34,270) (46,773)
Other 2,143,368 852,221
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NET CASH PROVIDED BY
OPERATING ACTIVITIES 9,462,846 7,348,817
INVESTING ACTIVITIES
Held to Maturity:
Proceeds from maturities and redemptions
of investment securities 7,384,881 14,111,148
Purchase of investment securities (1,000,000) (33,011,638)
Net increase in loans (38,044,894) (35,334,852)
Purchases of premises and equipment (1,370,673) (2,549,239)
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NET CASH USED
BY INVESTING ACTIVITIES (33,030,686) (56,784,581)
FINANCING ACTIVITIES
Sale of Common Stock 940,858 467,678
Net decrease in deposits (32,147,268) (14,890,076)
Net increase in short-term
borrowings 40,624,304 20,131,769
Cash dividends (2,671,188) (2,272,328)
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NET CASH PROVIDED BY
FINANCING ACTIVITIES 6,746,706 3,437,043
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DECREASE IN CASH
AND CASH EQUIVALENTS (16,821,134) (45,998,721)
Cash and cash equivalents at the
beginning of the period 45,481,918 76,201,647
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CASH AND CASH EQUIVALENTS
AT THE END OF THE PERIOD $ 28,660,784 $ 30,202,926
============= =============
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 generally accepted accounting principles 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 for complete
financial statements. These financial statements should be read in conjunction
with the financial statements and the notes thereto incorporated herein by
reference to the Annual Report on Form 10-K of Tri City Bankshares Corporation
("Tri City") for the year ended December 31, 1999. 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 September 30, 2000 and the results of
its operations for the three month and nine month periods ended September 30,
2000 and 1999 and its cash flows for the nine month periods ended September 30,
2000 and 1999. The operating results for the first nine 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 OPERATION
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") net assets have increased
$12.9 million (2.4%) during the first nine months of 2000 compared to an
increase of $9.6 million (1.9%) during the first nine months of 1999. Loan
growth has continued to be the primary source of asset growth as loan balances
increased $38.0 million (11.9%) in the first nine months of 2000 compared with
an increase of $36.2 million (13.1%) in the first nine months of 1999.
Management is working hard to attract new borrowers as well as provide for the
needs of current customers who are seeking financial assistance for large
purchases or implementing business opportunities. The Corporation has benefited
from the continuing strength of the economy and the efforts of management and
staff with increased profits and growth in its asset base. The reserve for loan
losses has grown $178,300 (4.1%) during 2000 compared to a growth of $144,200
(3.4%) in 1999. Management reviews the adequacy of the Corporation's reserve for
loan loss quarterly, and considers the quality of the loan portfolio, the level
of non-performing loans, loan portfolio size and composition, borrow financial
condition, general economic conditions, collateral adequacy and historical loss
experience. Since the Corporation's average loan charge-off history has remained
low over the past years, and there are currently no adverse trends or other
factors, management believes that the allowance for loan loss is adequate. The
ratio of the allowance for loan loss to loans as of September 30, 2000 was 1.26%
compared to 1.36% as of September 30, 1999.
During the first nine months of 2000, investment securities decreased $6.6
million (4.6%) compared to an increase of $17.8 million (13.2%) in the first
nine months of 1999. The yields which can be attained on investment securities
currently are not substantial enough for management to commit funds for an
extended period of time. It has been management's philosophy to hold securities
until they mature and with rates low they do not want to invest the
Corporations' earning assets in lower yielding investments.
The Corporation's cash and cash equivalents have decreased $16.8 million (37.0%)
in the first three quarters of 2000 compared to a decrease of $46.0 million
(60.4%) during the same period in 1999. This cash, as well as funds received
from the matured investments, were used to finance new loans in 2000.
Deposits decreased $32.1 million (7.0%) during the first nine months of 2000
compared to a decrease of $14.9 million (3.3%) during the first nine months of
1999. The Corporations' average yearly deposits, however, have increased $7.2
million (1.7%) during this same period in 2000 compared to an increase of $35.4
million (8.9%) in 1999. Management works hard to attract and maintain deposits
in the Corporation's banking subsidiary, however, this needs to be balanced with
its overall cost of funds so as to maintain or improve its profitability.
Offering high rates to maintain deposits can sometimes have an adverse effect on
profitability if rates on earning assets should drastically decline. Borrowings
have increased for the short term while the Corporation is attracting new
deposits .
LIQUIDITY
The ability to provide the necessary funds for the day-to-day operations of the
corporation depends 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 hopefully encourage depositors to leave their
money in the Corporation's banking subsidiary. Management continues to research
and examine the market in order to provide new savings instruments that will
help attract new deposits and stimulate growth. In order to insure the
Corporation has adequate liquidty, the Corporation's banking subsidiary has
available $40.0 million in federal funds purchased facilities as well as $38.0
million in reverse repurchase agreement facilities through its correspondent
bank relationship. As an additional source of liquidity, the Corporation's
banking subsidiary established a credit facility in the amount of $43.8 million
with the 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 site in the Southeastern corner of 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. A new structure is currently being
constructed. Management hopes that the new facility will begin operation
sometime during the second quarter of 2001. The cost of this building will be
funded internally and is expected to be about $1.2 million.
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 opportunity
presents itself management of the Corporation will pursue such opportunities if
they are in the best interests of the Corporation.
RESULTS OF OPERATIONS
Three Months ended September 30, 2000 and 1999
The net income of the Corporation increased $177,100 (10.2%) during the third
quarter of 2000 compared to an increase of $103,900 (6.0%) during the third
quarter of 1999. Interest income and fees on loans was the primary contributor
to this increase. Loan fees and interest income increased $1.4 million (20.3%)
in the third quarter of 2000 compared to an increase of $147,000 (2.2%) during
the third quarter of 1999. Loan balances have increased $12.9 million (3.8%)
during the third quarter of 2000 compared to an increase of $19.6 million (5.7%)
in the third quarter of 1999, while rates were approximately 50 basis points
higher as of September 30, 2000 than September 30, 1999.
Interest income on investment securities decreased $216,700 (11.0%) in the third
quarter of 2000 compared to an increase of $174,800 (9.9%) during the third
quarter of 1999. Both agency and municipal securities have declined by $6.5
million due to maturities during 2000. Loan demand has been very strong and as a
result management has decided to invest these funds into the Corporation's loan
portfolio. The Corporation will not only receive a higher yield but will be
placing funds back into the communities serviced.
Interest on Federal Funds sold increased $212,700 in the third quarter of 2000
compared to a decrease of $236,500 in the third quarter of 1999. The Corporation
had entered into short-term funding agreements during the first quarter of 2000.
These funds were invested into Federal Funds sold since the term was uncertain.
During the three months ended September 30, 2000, interest expense on deposits
increased $169,360 (6.5%) compared to a decrease of $51,000 (1.8%) in the third
quarter of 1999. Although deposit balances have gone down, the rates paid on
deposits has increased. The average rates paid as of September 30, 2000 are 30
basis points higher than those paid as of September 30, 1999. Interest expense
paid on short term borrowings increased $581,900 (282.6%) during the third
quarter of 2000 compared to an increase of $177,100 (614.9%) during the same
period in 1999. Short-term borrowing agreements mentioned previously were
responsible for this increase.
Other income decreased $173,400(10.1%) in the third quarter of 2000 compared to
a decrease of $55,200(3.2%) in the third quarter of 1999. Total other expenses
increased $94,400(1.8%) in the third quarter of 2000 compared to an increase of
$300,300(6.1%) in the third quarter of 1999.
A summarized change in income for the quarters appears below :
Three Months Ended September 30, September 30, 2000
2000 1999 Over(Under)
(UNAUDITED) (UNAUDITED) 1999
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Revenue and Expenses: (000's)
Interest Income $ 10,000 $ 8,648 $ 1,352
Less: Interest Expense 3,573 2,822 751
--------- --------- ---------
Net Interest Income 6,427 5,826 601
Less: Provision for Loan Loss 75 75 0
Other Operating Expense
Net of Other Operating Revenues 3,754 3,486 268
--------- --------- ---------
Income Before Income Taxes 2,598 2,265 333
Tax Provision 684 528 156
--------- --------- ---------
NET INCOME $ 1,914 $ 1,737 $ 177
========= ========= =========
Nine Months ended September 30, 2000 and 1999
During the first nine months of 2000 the Corporations' net income increased
$839,300 (16.5%) compared to a decrease of $127,200 (2.4%) in the first nine
months of 1999. In the first quarter of 2000 the Corporation sold its investment
in the First National Bank of Eagle River, Wisconsin. Net income for the first
nine months would have posted an increase of $342,000 without this transaction.
Interest income and fees on loans increased $3.5 million (18.3%) compared to a
decrease of $210,500 (1.1%) during the same period in 2000 and 1999
respectively. Loan demand has been good and new loans have helped to account for
the primary increase in net income. Management has remained diligent in its
approval of new loans to maintain the quality of the loan portfolio of the
Corporation while still accommodating the needs of its customers.
Interest income on investment securities has decreased $474,100 (8.2%) in the
first nine months of 2000 compared to an increase of $685,800 (13.5%) during the
same period in 1999. Management has decided not to reinvest funds from maturing
securities into new securities due to stronger loan demand. The yield attained
on new securities is far below the yield derived from the loan portfolio.
Interest expense paid on deposits increased $408,080 (5.2%) during the first
nine months of 2000 compared to a decrease of $334,800 (2.4%) during the first
nine months of 1999. Rates have increased during 2000 even though the deposit
balances have declined. Interest paid on borrowed funds have also increased $1.5
million compared to an increase of $122,000 during this same period. Proceeds
from short-term funding agreements entered into during the first quarter of 2000
were used to purchase customer repurchase agreements.
Other income increased $268,800 (5.2%) in the first nine months of 2000
primarily due to the sale of the First Bank of Eagle River stock. This compares
to an increase of $26,500 (0.5%) in the first nine months of 1999. Other
expenses have increased $481,900 (3.1%) during the same period in 2000 compared
to an increase of $1.1 million (7.5%) in 1999. The effects of a new facility for
the Corporation's operations center as well as costs associated with the
installation of a new data processing system were not realized fully until 1999
which accounts for the large increase during that period.
CAPITAL ADEQUACY
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 18.02% and its leverage
ratio is 12.20% as of September 30, 2000.
ITEM 3
QUANTITATIVE AND QUALITATIVE 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
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: November 9, 2000 /s/Henry Karbiner, Jr.
-------------------------- --------------------------------
Henry Karbiner, Jr., President
(Chief Executive Officer)
DATE: November 9, 2000 /s/Thomas W. Vierthaler
---------------------------- --------------------------------
Thomas W. Vierthaler
Vice President and Comptroller
(Chief Accounting Officer)
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
27 Financial Data Schedule