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, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OFTHE 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
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(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
----- -----
The number of shares outstanding of $1.00 par value common stock, as of
March 31, 2002: 2,644,908 shares.
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, 2002 and December 31, 2001 3
Consolidated Statements of Income
for the Three Months ended March 31, 2002
and 2001 4
Consolidated Statements of Cash Flows
For the Three Months ended March 31, 2002
And 2001 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 14
PART II - OTHER INFORMATION
Item 1 & 6 Exhibits and Reports on Form 8-K 15
Signatures 16
ITEM 1: Financial Statements
TRI CITY BANKSHARES CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, 2002 December 31,
(Unaudited) 2001
ASSETS -------------- --------------
Cash and due from banks $ 31,330,231 $ 44,754,703
Federal funds sold 15,473,562 18,982,448
-------------- --------------
Cash and cash equivalents 46,803,793 63,737,151
Investment securities:
Held-to-maturity (fair value of
2002 - 136,375,826
2001 - 145,797,575) 135,321,530 143,753,829
Loans 384,499,612 372,838,112
Allowance for loan losses (4,903,034) (4,827,300)
-------------- --------------
Net Loans 379,596,578 368,010,812
Premises and equipment 22,602,544 22,755,736
Other assets 5,048,269 4,515,457
-------------- --------------
TOTAL ASSETS $ 589,372,714 $ 602,772,985
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 142,556,224 $ 137,077,682
Interest bearing (over $100,000) 46,638,272 48,146,000
Interest bearing 315,336,942 336,045,627
-------------- --------------
Total Deposits 504,531,438 521,269,309
Short-term borrowings:
Federal funds purchased and
securities sold under
agreements to repurchase 2,750,000 3,250,000
Other Borrowings 4,532,130 1,429,256
-------------- --------------
Total Short Term Borrowings 7,282,130 4,679,256
Other Liabilities 1,770,526 1,958,971
-------------- --------------
TOTAL LIABILITIES 513,584,094 527,907,536
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 2,644,908 2,629,834
Additional paid in capital 14,656,313 13,996,480
Retained earnings 58,487,399 58,239,135
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY 75,788,620 74,865,449
-------------- --------------
$ 589,372,714 $ 602,772,985
============== ==============
See Notes to Unaudited Consolidated Financial Statements.
TRI CITY BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(UNAUDITED)
2002 2001
---- ----
Interest income:
Loans, including fees $ 7,497,479 $ 8,180,399
Investment securities:
Taxable 901,009 779,275
Exempt from federal income tax 769,682 864,172
Federal funds sold 38,422 57,020
------------ ------------
TOTAL INTEREST INCOME 9,206,592 9,880,866
Interest expense:
Deposits 2,111,270 3,182,113
Short-term borrowings 51,163 299,854
------------ ------------
TOTAL INTEREST EXPENSE 2,162,433 3,481,967
------------ ------------
NET INTEREST INCOME 7,044,159 6,398,899
Provision for loan losses 105,000 (105,000)
------------ ------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 6,939,159 6,293,899
Other income:
Service charge income 708,267 670,481
Rental income 363,729 312,372
Gain on Sale of Loans 152,954 (1,800)
Other 864,120 696,773
------------ ------------
TOTAL OTHER INCOME 2,089,070 1,677,826
Other expense:
Salaries and employee benefits 3,303,103 2,990,629
Net occupancy 822,719 754,739
Equipment 429,932 358,254
Data processing 318,784 294,419
Advertising 151,544 139,576
Regulatory agency assessments 56,047 51,051
Office supplies 134,753 161,354
Other 2,160,254 629,158
------------ ------------
TOTAL OTHER EXPENSE 7,377,136 5,379,180
------------ ------------
Income before income taxes 1,651,093 2,592,545
Provision for income taxes 272,000 673,000
------------ ------------
NET INCOME $ 1,379,093 $ 1,919,545
============ ============
Per share data:
Net income $ 0.52 $ 0.74
Common stock investment $ 28.69 $ 28.94
Dividends $ 0.430 $ 0.380
Average shares outstanding 2,641,898 2,587,154
See Notes to Unaudited Consolidated Financial Statements.
TRI CITY BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(UNAUDITED)
2002 2001
---- ----
OPERATING ACTIVITIES
Net income $ 1,379,093 $ 1,919,545
Adjustments to reconcile net income
to net cash provided by operating
activities:
Proceeds from sale of loans
held for sale 21,273,211 9,165,522
Origination of loans held
for sale (21,273,211) (9,165,522)
Amortization of investment
securities premiums and
accretion of discounts 40,980 17,224
Provision for loan losses 105,000 105,000
Provision for depreciation 502,143 493,287
(Increase) Decrease in interest
receivable (251,591) 27,975
(Decrease) in interest payable (256,114) (33,210)
Other (213,554) (141,865)
-------------- --------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 1,305,957 2,387,956
INVESTING ACTIVITIES
Proceeds from maturities and redemptions
of investment securities 12,389,158 17,199,185
Purchase of investment securities (3,997,840) (5,826,167)
Net increase in loans (11,690,766) (9,039,347)
Purchases of premises and equipment (348,951) (814,895)
-------------- --------------
NET CASH (USED) PROVIDED BY
INVESTING ACTIVITIES (3,648,399) 1,518,776
FINANCING ACTIVITIES
Net decrease in deposits (16,737,871) (8,444,097)
Net increase in short-term
borrowings 2,602,874 1,287,204
Sale of Common Stock 674,907 558,748
Cash dividends (1,130,826) (978,800)
-------------- --------------
NET CASH USED BY
FINANCING ACTIVITIES (14,590,916) (7,576,945)
-------------- --------------
DECREASE IN CASH
AND CASH EQUIVALENTS (16,933,358) (3,670,213)
Cash and cash equivalents at the
beginning of the period 63,737,151 45,209,578
-------------- --------------
CASH AND CASH EQUIVALENTS
AT THE END OF THE PERIOD $ 46,803,793 $ 41,539,365
============== ==============
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, 2001. The December 31,
2001 financial information included herein is derived from the December 31, 2001
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, 2002 and the results of its operations and cash flows
for the three month periods ended March 31, 2002 and 2001. 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 2002 are not necessarily indicative of the results,
which may be expected for the entire 2002 fiscal year.
(B) Commitments and Contingent Liabilities
The banking subsidiary of the Corporation was involved in two separate legal
actions seeking damages in Milwaukee County Circuit Court. Both of these legal
actions have been resolved. A detailed explanation can be found in two separate
8-K filings of the Corporation dated March 25, 2002 and May 9, 2002.
TRI CITY BANKSHARES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
Forward-Looking Statements
This report contains statements that may constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995, such
as statements other than historical facts contained or incorporated by reference
in this report. These statements speak of Tri City Bankshares' (the
"Corporation") plans, goals, beliefs or expectations, refer to estimates or use
similar terms. Future filings by the Corporation with the Securities and
Exchange Commission, and statements other than historical facts contained in
written material, press releases and oral statements issued by, or on behalf of
the Corporation may also constitute forward-looking statements.
Forward-looking statements are subject to significant risks and uncertainties,
and the Corporation's actual results may differ materially from the results
discussed in such forward-looking statements. Factors that might cause actual
results to differ from the results discussed in forward-looking statements
include, but are not limited to:
o General economic and industry conditions, either nationally or in the state
in which the Corporation does business, which are less favorable than
expected and that result in, among other things, a deterioration in credit
quality and/or loan performance and collectability;
o Legislation or regulatory changes which adversely affect the business in
which the Corporation is engaged;
o Changes in the interest rate environment;
o Changes in securities markets with respect to the market value of financial
assets and the level of volatility in certain markets such as foreign
exchange;
o Significant increases in competition in the banking and financial services
industry resulting from technological developments, new product
introductions, evolving industry standards, industry consolidation,
increased availability of financial services from non-banks, regulatory
changes and other factors, as well as actions taken by particular
competitors;
o The Corporation's success in continuing to generate significant levels of
new business in its existing markets and in identifying and penetrating
targeted markets;
o The Corporation's success in implementing its business strategy;
o Changes in consumer spending, borrowing and saving habits;
o Technological changes;
o Acquisitions and unanticipated occurrences which delay or reduce the
expected benefits of acquisitions;
o The Corporation's ability to increase market share and control expenses;
o The effect of compliance with legislation or regulatory changes;
o The effect of changes in accounting policies and practices; and
o The costs and effects of unanticipated litigation and of unexpected or
adverse outcomes in such litigation.
All forward-looking statements contained in this report or which may be
contained in future statements made for or on behalf of the Corporation are
based upon information available at the time the statement is made and the
Corporation assumes no obligation to update any forward-looking statement.
CHANGES IN FINANCIAL POSITION
The Corporation's total assets have decreased $13.1 million (2.2%) during the
first quarter of 2002. Cash and Due from Banks decreased $13.4 million (30.0%)
in the first three months of 2002. This decrease is not unusual during the first
quarter of each year. There is typically an increase of cash and cash
equivalents during the month of December each year. Municipal deposits increase
due to payments of property taxes. Commercial deposits increase due to holiday
spending.
Investment securities decreased $8.4 million (5.9%) during the first three
months of 2002. Management chose not to reinvest funds from maturing and called
securities back into the Investment portfolio. Since the yields and terms of new
securities available for purchase have not been very attractive, the Corporation
has made those funds available for its loan portfolio which management expects
will yield a higher rate of return.
Loan demand has continued to remain at a moderate level and management believes
that the activity in this area is beginning to improve. During the first quarter
of 2002, loans increased $11.7 million (3.1%). Although the number of mortgage
loans refinanced has slowed drastically, commercial lending has increased.
Management continues to offer attractive rates and packages to help stimulate
activity in all lending areas. They are optimistic that loan demand will
continue to improve during 2002 in not only commercial lending but also in
consumer and mortgage lending as well. The allowance for loan losses increased
$75,700 (1.6%) in the first three months of 2002. Although the increase in loan
balances does increase the Corporation's exposure to loan loss, management has
continued to maintain the provision at the 2001 level. They believe that the
quality of the loan portfolio is excellent and that the level of exposure still
remains low. Management continues to monitor the quality of loans that the
Corporation makes each year as well as review past loans for performance over
the prior years.
Deposits of the Corporation have decreased $16.7 million (3.2%) during the first
quarter of 2002 compared to a decrease of $8.4 million (1.8%) during the first
quarter of 2001. Interest rates have stopped the drastic decline of the past
year. The decrease in deposits was primarily from higher yielding certificates
of deposit which are maturing and not renewing due to low rates. When interest
rates decline, depositors tend to place their funds either in shorter-term
instruments or invest them in the securities market. Management continues to
look for ways to maintain these funds in the Corporation and to bring new
deposits into the Corporation.
The Corporation's equity has increased $923,200 (1.2%) during the first quarter
of 2002. During the first three months of 2002, the Corporation entered into
mediation with Centex Credit Corporation, which resulted in the settlement of a
legal action filed during 2001. This settlement had a negative after tax effect
on the Corporation's first quarter earnings of $957,000.
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 $30.0 million in
federal funds purchased as well as $38.0 million reverse repurchase agreements
through its correspondent bank relationship.
CAPITAL RESOURCES
During the first quarter of 2002 the Corporation filed an application to open a
new banking branch inside a Pick `n Save food store located in the Northwest
area of Milwaukee. The Corporation's banking subsidiary would fund this new
location internally and expects that the cost of this project will be nominal.
There are no other major projects currently planned for 2002; however,
management continues to examine all 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.
RESULTS OF OPERATIONS
The Corporation's net income decreased $540,500 (28.2%) during the first quarter
of 2002 compared to the same period in 2001, primarily due to the settlement of
the Centex Credit litigation which had a $957,000 after-tax effect on the first
quarter.
Interest income and fees on loans decreased $682,900 (8.3%) in the first three
months of 2002 compared to the first three months of 2001. The average yield on
loans is approximately 120 basis points lower in the first quarter of 2002 than
realized in the first quarter of 2001. Although loan balances have continued to
grow, the market rates received on those loans are lower. The Net Interest
Margins (N.I.M.) however, has improved as interest expense has also dramatically
decreased as discussed below.
Interest income on investment securities has increased $27,200 (1.7%) during the
first three months of 2002 compared to the first three months of 2001. Although
investment balances have decreased $8.4 million during the first quarter of
2002, they were $12.4 million higher than the March 31, 2001 investment security
balances. Management strives to improve the Corporation's profitability through
matching interest bearing liabilities with interest earning assets. When rates
are high, investment securities are attractive because they are usually for a
longer term. When rates are low, the Corporation looks for investments which
have a more flexible term.
Interest expense on deposits decreased $1.1 million (33.7%) in the first three
months of 2002 compared to the first three months of 2001. The primary cause of
this decrease is the significantly lower yields paid on deposits. Management is
confident that through additional promotions and very competitive rates that the
Corporation will be able to attract new deposit money. Interest expense on
borrowed funds has also decreased $248,700 (82.9%) in the first quarter of 2002
compared to the first quarter of 2001. Lower balances and rates have both
contributed to this decrease.
Other income increased $411,200 (24.5%) during the first quarter of 2002
compared to the same period in 2001. In 2002 the Corporation received a dividend
of $174,000 from the sale of its interest in the TYME Corporation. Other
expenses increased $2.0 million (37.1%) during the first quarter of 2002
compared to an increase of $144,000 (2.8%) during the first quarter of 2001. The
primary increase in other expense is from the litigation settlement paid during
the first quarter of 2002, as described in footnote B to the Notes to Unaudited
Consolidated Financial Statements.
A summarized change in income for the quarters appears below:
Three Months Ended March 31, March 31, 2002
2002 2001 Over(Under)
(UNAUDITED) (UNAUDITED) 2001
----------- ----------- ------------
Revenue and Expenses: (000's)
Interest Income $ 9,206 $ 9,881 $ (675)
Less: Interest Expense
2,162 3,482 (1,320)
----------- ----------- ------------
Net Interest Income
7,044 6,399 645
Less: Provision for Loan Loss 105 105 --
Other Operating Expense
Net of Other Operating
Revenues 5,288 3,701 1,587
----------- ----------- ------------
Income Before Income Taxes 1,651 2,593 (942)
Tax Provision 272 673 (401)
----------- ----------- ------------
NET INCOME $ 1,379 $ 1,920 $ (541)
=========== =========== ============
CAPITAL ADEQUACY
Federal banking regulatory agencies has 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 20.11% and its leverage
ratio is 12.95%.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Corporation's Annual Report on Form 10-K for the year ended December 31,
2001 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 1 Legal Proceedings
See Footnote (B) of the Notes to Unaudited
Consolidated Financial Statements for information
relating to lawsuits.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
The Corporation filed one Form 8-K during the quarter covered
by this report as follows:
(1) Form 8-K dated March 25, 2002 under Item 5. The
Corporation filed a letter to shareholders describing
litigation developments and other matters.
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, 2002 /s/Henry Karbiner, Jr.
---------------- ---------------------------------
Henry Karbiner, Jr.
President, Chief Executive Officer
and Treasurer
(Principal Executive Officer)
DATE: May 10, 2002 /s/Thomas W. Vierthaler
---------------- ---------------------------------
Thomas W. Vierthaler
Vice President and Comptroller
(Chief Accounting Officer)