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, 2001
[ ] 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
------------------------------ ------------------------
(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
--------
Zip Code
(414) 761-1610
----------------------
(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
----- -----
The number of shares outstanding of $1.00 par value common stock, as of
March 31, 2001: 2,544,077
FORM 10-Q
TRI CITY BANKSHARES CORPORATION
INDEX
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited) Page #
Consolidated Balance Sheets as of
March 31, 2001 and December 31, 2000 ............ 3
Consolidated Statements of Income
for the Three Months ended March 31, 2001
and 2000 ........................................ 4
Consolidated Statements of Cash Flows
For the Three Months ended March 31, 2001
And 2000 ........................................ 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 Quantative and Qualitative Disclosure about Market Risk.. 13
PART II - OTHER INFORMATION
Item 6 Exhib14s and Reports on Form 8-K
Signatures .............................................. 15
2
TRI CITY BANKSHARES CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31,
2001 2000
------------- -------------
ASSETS
Cash and due from banks $ 33,338,725 $ 43,873,802
Federal funds sold 8,200,642 1,335,776
------------- -------------
Cash and cash equivalents 41,539,367 45,209,578
Investment securities:
Held-to-maturity (fair
value of 2001 - 124,688,513
2000 - 133,942,334) 122,896,826 134,287,069
Loans 370,815,924 361,771,147
Allowance for loan losses (4,631,895) (4,521,465)
------------- -------------
Net Loans 366,184,029 357,249,682
Premises and equipment 21,914,944 21,593,336
Other assets 4,744,981 4,735,268
------------- -------------
TOTAL ASSETS $ 557,280,147 $ 563,074,933
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 125,363,342 $ 136,522,645
Interest bearing (over $100,000) 47,398,000 44,214,855
Interest bearing 288,935,697 289,403,636
------------- -------------
Total Deposits 461,697,039 470,141,136
Short-term borrowings:
Federal funds purchased and securities sold under
agreements to repurchase 22,525,673 19,787,032
Other Borrowings 781,622 2,233,059
------------- -------------
Total Short Term Borrowings 23,307,295 22,020,091
Other Liabilities 1,879,902 2,017,264
------------- -------------
TOTAL LIABILITIES 486,884,236 494,178,491
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:
2001 - 2,589,426 shares;
2000 - 2,575,797 shares 2,589,426 2,575,797
Additional paid in capital 12,302,626 11,757,507
Retained earnings 55,503,859 54,563,138
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 70,395,911 68,896,442
------------- -------------
$ 557,280,147 $ 563,074,933
============= =============
See Notes to Unaudited Consolidated Financial Statements.
3
TRI CITY BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(UNAUDITED)
2001 2000
----------- -----------
Interest income:
Loans, including fees $ 8,180,399 $ 7,004,782
Investment securities:
Taxable 779,275 899,491
Exempt from federal income tax 864,172 917,680
Federal funds sold 57,020 17,823
----------- -----------
TOTAL INTEREST INCOME 9,880,866 8,839,776
Interest expense:
Deposits 3,182,113 2,692,849
Short-term borrowings 299,854 190,417
----------- -----------
TOTAL INTEREST EXPENSE 3,481,967 2,883,266
----------- -----------
NET INTEREST INCOME 6,398,899 5,956,510
Provision for loan losses (105,000) (75,000)
----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 6,293,899 5,881,510
Other income:
Service charge income 670,481 769,734
Rental income 312,372 246,241
Other 694,973 1,329,032
----------- -----------
TOTAL OTHER INCOME 1,677,826 2,345,007
Other expense:
Salaries and employee benefits 2,990,629 2,919,702
Net occupancy 754,739 731,648
Equipment 358,254 326,477
Data processing 294,419 279,318
Advertising 139,576 153,071
Regulatory agency assessments 51,051 50,714
Office supplies 161,354 156,960
Other 629,158 615,335
----------- -----------
TOTAL OTHER EXPENSE 5,379,180 5,233,225
----------- -----------
Income before income taxes 2,592,545 2,993,292
Provision for income taxes 673,000 836,000
----------- -----------
NET INCOME $ 1,919,545 $ 2,157,292
=========== ===========
Per share data:
Net income $ 0.74 $ 0.85
Common stock investment $ 27.21 $ 25.41
Dividends $ 0.380 $ 0.350
Average shares outstanding 2,587,154 2,542,922
See Notes to Unaudited Consolidated Financial Statements.
4
TRI CITY BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(UNAUDITED)
2001 2000
------------- -------------
OPERATING ACTIVITIES
Net income $ 1,919,545 $ 2,157,292
Adjustments to reconcile net income to
net cash provided by operating
activities:
Proceeds from sale of loans
held for sale 9,165,522 841,180
Origination of loans held
for sale (9,165,522) (841,180)
Amortization of investment
securities premiums and
accretion of discounts 17,224 59,281
Provision for loan losses 105,000 75,000
Provision for depreciation 493,287 468,753
Increase in interest receivable 27,975 (167,976)
Decrease in interest payable (33,210) (13,422)
Other (141,863) 1,827,775
------------- -------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 2,387,958 4,406,703
INVESTING ACTIVITIES
Proceeds from maturities and
redemptions of investment
securities 17,199,185 4,373,235
Purchase of investment securities (5,826,167) 0
Net increase in loans (9,039,347) (10,120,398)
Purchases of premises and equipment (814,895) (416,410)
------------- -------------
NET CASH USED
BY INVESTING ACTIVITIES 1,518,776 (6,163,573)
FINANCING ACTIVITIES
Net decrease in deposits (8,444,097) (4,780,233)
Net increase in short-term
borrowings 1,287,204 74,350,438
Sale of Common Stock 558,748 215,941
Cash dividends (978,800) 888,383
------------- -------------
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES (7,576,945) 68,897,763
------------- -------------
INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (3,670,211) 67,140,893
Cash and cash equivalents at the
beginning of the period 45,209,578 45,481,918
------------- -------------
CASH AND CASH EQUIVALENTS
AT THE END OF THE PERIOD $ 41,539,367 $ 112,622,811
------------- =============
See Notes to Unaudited Consolidated Financial Statements.
5
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, 2000. The December 31,
2000 financial information included herein is derived from the December 31, 2000
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, 2001 and the results of its operations and cash flows
for the three month periods ended March 31, 2001 and 2000. 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 2001 are not necessarily indicative of the results
which may be expected for the entire 2001 fiscal year.
6
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
Total assets for Tri City Bankshares Corporation (the "Corporation") have
decreased $5.8 million (1.0%) during the first quarter of 2001 compared to an
increase of $71.0 million (13.4%) during the first quarter of 2000. The first
quarter of 2000 was inflated with an infusion of $76.8 million from several
short term funding agreements entered into on the last day of the quarter. This
additional cash had an affect on several different areas including but not
limited to cash and cash equivalents, Federal Funds sold and customer repurchase
agreements. Cash and cash equivalents decreased $10.5 million (24.0%) during the
first three months of 2001 compared to an increase of $67.1 million (147.6%)
during the same period in 2000.
Investment securities decreased $11.4 million (8.5%) in the first three months
of 2001 compared to a decrease of $4.4 million (3.15%) during the same period in
2000. This decrease is due to maturities and calls on securities. Management has
7
monitored available securities however, acceptable yields require unacceptable
maturities and/or all features. As a result the securities portfolio has
decreased 8.5% as the emphasis has shifted to lending.
In the first quarter of 2001, loan balances have increased $9.0 million (2.5%)
compared to an increase of $10.1 million (3.2%) in the first quarter of 2000.
Loan demand has continued slower although adequate to achieve a level of growth
similar to that in 2000. Management has continued to monitor the quality of
loans through the senior credit review committee and believes the loan
standards, and as a result the quality of the portfolio, remain high. The
Corporation has continued to provide each of the communities it serves with a
local lending institution which keeps the customer's needs in mind while
offering a personal touch. The allowance for loan loss increased $110,400 (2.4%)
in the first quarter of 2001 compared to an increase of $20,500 (0.5%) in the
first quarter of 2000. The increase keeps the allowance at the level management
has sought to maintain and feels adequate to provide for any loan losses which
may be realized.
Deposits of the Corporation have decreased $8.4 million (1.8%) during the first
three months of 2001 compared to a decrease of $4.8 million (1.0%) during the
first three months of 2000. Simultaneously, interest rates have declined during
the first quarter of 2001, consumers have been trying to find the best
investment for their money. Management has continued to find ways to maintain
the Corporation's deposit base while attracting new deposits. Various promotions
have been offered along with competitive rates to accomplish this goal. Although
actual balances are down from year-end totals, average savings and time deposit
balances have increased from $314.6 million as of March 31, 2000 to $334.5
million as of March 31, 2001. Total borrowings of the Corporation have increased
$1.3 million (5.8%) during the first quarter of 2001 compared to an increase of
$74.4 million during the first quarter of 2000, of which $76.4 million was due
to borrowing agreements entered into on the last day of March in 2000.
8
Equity in the Corporation increased $1.5 million (2.2%) in the first quarter of
2001 compared to an increase of $1.5 million (2.4%) during the first quarter of
2000.
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 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 $15.0 million in
federal funds purchased as well as $30.3 million reverse repurchase agreements
through its correspondent bank relationship. As an additional source of
liquidity the Corporation's banking subsidiary established a credit facility
with the ability to borrow $43.1 million at the Federal Reserve Bank of Chicago
Loan and Discount Window.
CAPITAL RESOURCES
The progress on the construction of the new full service brick and mortar
building in South Milwaukee, Wisconsin is proceeding as planned. The projected
opening of this newest office is June 2001. This will bring the banking
facilities of the Corporation to 32. This project will be funded internally and
the cost of this project is estimated to be around $1.6 million. As of March 31,
2001, $970,200 has been expended to date. There are no other major projects
currently planned for 2001, however management continues to examine ways in
which the Corporation can grow and increase its profitability. Presented with
the right opportunity, management will act according to the best interests of
the Corporation.
9
RESULTS OF OPERATIONS
The Corporation's net income decreased $237,700 (11.0%) during the first three
months of 2001 compared to an increase of $558,300 (34.9%) during the first
three months of 2000. The Corporation sold its investment in the First National
Bank of Eagle River in January 2000. The realized gain from this sale was
$810,750, which was treated as ordinary gain. Had this transaction not occurred
in 2000, the net income of the Corporation would have increased $255,100 (15.3%)
during the first quarter of 2001 compared to an increase of $65,450 (4.1%)
during the first quarter of 2000.
Loan interest income and fees increased $1.2 million (16.8%) in the first
quarter of 2001 compared to an increase of $856,800 (13.9%) in the first quarter
of 2000. Although loan demand has slowed slightly, portfolio growth during the
first three months of 2001 has continued on an aggressive pace, similar to the
level of 2000. Management has continued an effort to increase loan production
while still maintaining a strong portfolio.
Interest income on investment securities decreased $173,700 (9.6%) during the
first quarter of 2001 compared to a decrease of $44,000 (2.4%) in the first
three months of 2000. As investment securities mature or are called, management
has not found suitable securities to replace them and has decided to reinvest
these funds into the loan portfolio where the demand has been high. Since
interest rates have continued to drop, the securities which are available do not
have suitable yields or there is question to the quality and riskiness of the
security. Management will not sacrifice the quality of the Corporation's
investment portfolio and subject the Corporation to undue risk in order to
maximize profits. Interest income on funds sold increased $39,200 (219.9%)
during the first quarter of 2001 compared to a decrease of $127,200 (87.7%)
during the first quarter of 2000. The Corporation had repurchase agreements sold
which it did not have in 2000.
Interest expense on deposits increased $442,400 (7.4%) in the first three months
10
of 2001 compared to an increase of $78,500 (3.0%) in the first three months of
2000. Although regular savings deposit interest declined total interest expense
on deposits increased. Although deposit balances decreased $8.4 million (1.8%)
during the first three months of 2001, total deposits have increased $7.0
million (1.5%) from March 31, 2000 to March 31, 2001. Since interest rates on
deposits have declined during the first quarter of 2001, this increase in
deposit balances is primarily responsible for the increase in interest expense
on deposits. Short-term borrowings interest expense also increased $109,400
(57.5%) during this same period in 2001 compared to an increase of $168,600
(773.0%) during the same period in 2000.
Other expenses increased only 2.8% ($144,000) during the first three months of
2001 compared to an increase of 4.4% ($221,000) during the same period in 2000.
Salaries and employee benefits is the primary area of increase. New employees
are needed to staff the new facility in South Milwaukee when it opens and are
currently in training.
The income tax provision for the first quarter decreased 19.5% ($163,000)
primarily since additional tax was provided for the gain on sale of the First
National Bank of Eagle River stock sold during the first quarter of 2000. The
relative tax rate for the Corporation was 25.96% and 27.93% for the three-month
period ended March 31, 2001 and 2000 respectively.
11
A summarized change in income for the quarters appears below:
Three Months Ended March 31, March 31, 2001
2001 2000 Over(Under)
(UNAUDITED) (UNAUDITED) 2000
--------- --------- ---------
Revenue and Expenses: (000's)
Interest Income 9,881 8,840 1,041
Less: Interest Expense 3,482 2,883 599
------- ------- -------
Net Interest Income 6,399 5,957 442
Less: Provision for Loan Loss 105 75 30
Other Operating Expense
Net of Other Operating
Revenues 3,701 2,889 812
------- ------- -------
Income Before Income Taxes 2,593 2,993 (400)
Tax Provision 673 836 (163)
------- ------- -------
NET INCOME $ 1,920 $ 2,157 $ (237)
======= ======= =======
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 19.41% and its leverage
ratio is 12.81%.
12
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Corporation's Annual Report on Form 10-K for the year ended December 31,
2000, contains certain disclosures about market risks affecting the Corporation.
There have been on material changes to the information provided which would
require additional disclosures as of the date of this filing.
13
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
14
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 11, 2001 /s/Henry Karbiner, Jr.
----------------------------- --------------------------------
Henry Karbiner, Jr.
President, Chief Executive Officer
and Treasurer
(Chief Executive Office)
DATE: May 11, 2001 /s/Thomas W. Vierthaler
----------------------------- -------------------------------
Thomas W. Vierthaler
Vice President and Comptroller
(Chief Accounting Officer)
15
EXHIBIT INDEX
None