FORM 10-QSB
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SECURITIES AND EXCHANGE COMMISSION
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Washington, DC 20549
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QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
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OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended March 31, 2000
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Commission File Number: 0-25290
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Twin City Bancorp, Inc.
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(Exact name of small business issuer as specified in its
charter)
Tennessee 62-1582947
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(State of incorporation) (I.R.S. Employer
Identification No.)
310 State Street, Bristol Tennessee 37620
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(Address of principal executive offices) (Zip Code)
Issuer=s telephone number, including area code:
(423) 989-4400
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Check whether the issuer:(1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the
past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to
such requirements for the past ninety days:
Yes X No
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As of March 31, 200, there were 1,121,388 shares of the issuer's
Common Stock, par value $1.00 per share, issued and outstanding.
Transitional small business disclosure format (check one):
Yes No X
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TWIN CITY BANCORP, INC. AND SUBSIDIARIES
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Bristol, Tennessee
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INDEX
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - (Unaudited) as of
December 31, 1999 and March 31, 2000
Consolidated Statements of Comprehensive Income -
(Unaudited) for the three-month periods ended
March 31, 1999 and 2000
Consolidated Statements of Cash Flows -
(Unaudited) for the three-month periods ended
March 31, 1999 and 2000
Notes to (Unaudited) Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security
Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
TWIN CITY BANCORP, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
(in thousands, except share data)
December 31, March 31,
1999 2000
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Assets
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Cash and due from banks $ 2,998 $ 2,384
Interest-earning deposits 2,277 3,006
Investment securities (amortized cost - $4
and $4) 4 4
Loans receivable, net 87,202 88,973
Loans held for sale 172 1,407
Mortgage-backed securities (amortized
cost - $17,759 and $19,491) 17,075 18,831
Premises and equipment, net 3,487 3,780
Real estate, net 85 84
Federal Home Loan Bank stock 829 657
Interest receivable 244 271
Other 1,638 1,772
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Total assets $116,011 $121,169
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(continued on next page)
December 31, March 31,
1999 2000
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Liabilities and Stockholders' Equity
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Deposits $ 92,165 $ 96,501
Federal Home Loan Bank advances 8,850 8,900
Advance payments by borrowers for
taxes and insurance 274 647
Accrued expenses and other liabilities 436 407
Income taxes payable:
Current 69 252
Deferred 690 699
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Total liabilities 102,484 107,406
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Stockholders' Equity
Common stock ($1 par value, 8,000,000
shares authorized; 1,219,430 shares issued
And 1,121,388 outstanding at December 31, 1999
And March 31, 2000) 1,220 1,220
Paid-in capital 7,003 7,023
Retained earnings, substantially restricted 7,513 7,668
Accumulated other comprehensive income (loss) (423) (410)
Treasury stock, 98,042 shares, at cost (1,385) (1,385)
Unearned compensation:
Employee stock ownership plan (359) (342)
Management recognition plan (42) (11)
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Total stockholders' equity 13,527 13,763
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Total liabilities and stockholders' equity $116,011 $121,169
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The accompanying notes are an integral part of these
consolidated financial statements.
TWIN CITY BANCORP, INC.
AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(unaudited)
(in thousands, except per share data)
Three Months Ended
March 31
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1999 2000
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Interest income:
Loan $1,771 $1,795
Mortgage-backed securities 229 279
Investment securities 31 17
Interest-earning deposits 52 23
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Total interest income 2,083 2,114
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Interest expense:
Deposits 911 1,045
Federal Home Loan
Bank advances 104 98
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Total interest expense 1,015 1,143
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Net interest income 1,068 971
Provision for loan losses 35 1
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Net interest income after
provision for loan losses 1,033 970
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Non-interest income:
Loan fees and service charges 60 101
Insurance commission and fees 19 15
Gain on sale of loans 126 70
Other 8 7
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Total non-interest income 213 193
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Non-interest expense:
Compensation and employee
benefits 436 408
Net occupancy expense 98 98
Deposit insurance premiums 14 5
Data processing 71 87
Other 136 129
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Total non-interest expense 755 727
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(continued on next page)
TWIN CITY BANCORP, INC.
AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (continued)
(unaudited)
(in thousands, except per share data)
Three Months Ended
March 31
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1999 2000
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Income before income taxes $ 491 $ 436
Income tax expense 196 174
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Net income 295 262
Other comprehensive income:
Net unrealized gains (losses) on
securities available for sale, net
of tax benefit of $0 and $9,
respectively, for the three months
ended March 31, 1999 and 2000 (1) 13
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Comprehensive income $ 294 $ 275
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Basic net income per share $ .26 $ .25
Diluted net income per share $ .25 $ .24
Dividends paid per share $ .10 $ .10
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The accompanying notes are an integral part of these
consolidated financial statements.
TWIN CITY BANCORP, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
Three Months Ended
March 31,
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1999 2000
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Net cash provided (used) by operating activities $ 1,224 $ (777)
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Cash flows from investing activities:
Maturities of investment securities 500 -
Proceeds from sale of FHLB stock - 186
Principal payments on mortgage-backed securities 1,614 764
Purchase of mortgage-backed securities
classified as available for sale (4,238) -
Net decrease (increase) in loans originated (1,791) (1,739)
Purchase of loans (650) (2,616)
Premiums invested in life insurance - (2)
Proceeds from sale of real estate 121 -
Purchase of premises and equipment (62) (353)
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Net cash provided (used) by investing activities (4,506) (3,760)
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Cash flows from financing activities:
Net increase (decrease) in deposits 377 4,336
Increase in advance payments by borrowers
for taxes and insurance 399 373
Net proceeds from FHLB advances - 50
Dividends paid (172) (107)
Acquisition of treasury stock (311) -
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Net cash provided (used) by financing activities 293 4,652
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Net increase (decrease) in cash (2,989) 115
Cash at beginning of period 10,341 5,275
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Cash at end of period $ 7,352 $ 5,390
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Supplemental disclosures:
Noncash investing and financing activities:
Loans sold in exchange for mortgage-backed
securities $ 1,106 $ 2,505
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Foreclosed real estate $ 29 $ -
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Cash paid during the period for:
Interest $ 1,012 $ 1,170
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Income taxes $ 43 $ -
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The accompanying notes are an integral part of these
consolidated financial statements.
TWIN CITY BANCORP, INC.
AND SUBSIDIARIES
NOTES TO (UNAUDITED) CONSOLIDATED
FINANCIAL STATEMENTS
Note 1 - Basis of Presentation and Principles of Consolidation
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The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information and in
accordance with the instructions to Form 10-QSB. Accordingly,
they do not include all of the disclosures required by generally
accepted accounting principles for complete financial
statements. These consolidated financial statements include the
accounts of Twin City Bancorp, Inc. (the "Company") and its
subsidiary, Twin City Federal Savings Bank (the "Bank"), and the
Bank's wholly owned subsidiaries, TCF Investors, Inc. and
Magnolia Investment, Inc., and in consolidation all significant
intercompany items are eliminated. In the opinion of management,
all adjustments necessary for a fair presentation of the results
of operations for the interim periods presented have been made.
Such adjustments were of a normal recurring nature. The results
of operations for the 2000 interim periods are not necessarily
indicative of the results that may be expected for the entire
fiscal year.
It is suggested that these consolidated financial statements be
read in conjunction with the audited consolidated financial
statements and notes thereto for the Company for the year ended
December 31, 1999 which are included in the Form 10-KSB (file
no. 0-25290).
Note 2 - Cash Flow Information
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As presented in the consolidated statements of cash flows, cash
and cash equivalents include cash on hand and interest-earning
deposits in other banks. The Company considers all highly liquid
instruments with original maturities of three months or less to
be cash equivalents.
Item 2. Management's Discussion and Analysis of Financial
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Condition and Results of Operations
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GENERAL
The following discussion and analysis is intended to assist in
understanding the financial condition and the results of
operations of the Company. References to the "Company" include
Twin City Bancorp, Inc. and/or Twin City Federal Savings Bank
and its subsidiaries, as appropriate.
FORWARD-LOOKING STATEMENTS
When used in this discussion and elsewhere in this
Quarterly Report on Form 10-QSB, the words or phrases "will
likely result," "are expected to," "will continue," "is
anticipated," "estimate," "project" or similar expressions are
intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995.
The Company cautions readers not to place undue reliance on any
such forward-looking statements, which speak only as of the date
made, and advises readers that various factors, including
regional and national economic conditions, substantial changes
in levels of market interest rates, credit and other risks of
lending and investment activities and competitive and regulatory
factors could affect the Company's financial performance and
could cause the Company's actual results for future periods to
differ materially from those anticipated or projected. The
Company does not undertake and specifically disclaims any
obligation to update any forward-looking statements to reflect
occurrence of anticipated or unanticipated events or
circumstances after the date of such statements.
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2000 AND DECEMBER
31, 1999
The Company's total consolidated assets increased $5.2 million,
or 4.5% to $121.2 million at March 31, 2000 from $116.0 million
at December 31, 1999. Net loans receivable increased $1.8
million or 2.0% from $87.2 million at December 31, 1999 to $89.0
million at March 31, 2000. The Company continues to sell a
majority of its fixed-rate originations in the secondary market
servicing retained without recourse. The Company's portfolio of
mortgage-backed securities increased $1.8 million or 10.3% from
$17.1 million at December 31, 1999 to $18.8 million at March 31,
2000. A part of this increase of mortgage-backed securities was
$2.5 million of loans that were swapped for mortgage-backed
securities. Cash and due from banks and interest-earning
deposits increased from $5.3 million at December 31, 1999 to
$5.4 million at March 31, 2000.
Deposits increased $4.3 million, or 4.7% from $92.2 million at
December 31, 1999 to $96.5 million at March 31, 2000 through the
Company's marketing efforts and ability to attract new deposits.
The Company's borrowings from the Federal Home Loan Bank were
$8.9 million at March 31, 2000 and provide an additional source
of liquidity.
Stockholders' equity has increased $236,000 or 1.7% from
December 31, 1999 to March 31, 2000. The Company posted
comprehensive income of $275,000 for the three months ended
March 31, 2000 while paying dividends of $0.10 per share of
common stock, or $107,000. During the three months ended March
31, 2000, the Company recognized compensation earned in the
amount of
$68,000 from the Employee Stock Ownership Plan and the
Management Recognition Plan. There were no repurchases of common
stock during the March 2000 quarter.
COMPARISON OF RESULTS OF OPERATIONS
Net income was $262,000 or $0.24 diluted earnings per share for
the three months ended March 31, 2000 compared to $295,000 or
$0.25 diluted earnings per share for the three months ended
March 31, 1999. The decline in net income was attributable to
lower net interest income and non-interest income which offset
reductions in non-interest expense and the provision for loan
losses.
Net interest income for the three months ended March 31, 2000
decreased $97,000 as compared to the three months ended March
31, 1999. The changes are directly attributable to an increase
of $128,000 in interest expense as the average balance of
interest-bearing liabilities increased by approximately $6.5
million to$103.7 million for the three months ending March 31,
2000 as compared to the same period in 1999. The increase in
interest expense was offset by a $31,000 increase in interest
income. Interest earning assets increased by approximately $3.6
million during the three months ending March 31, 2000 compared
to the same period in 1999. The interest rate spread decreased
from 3.53% for the three months ended March 31, 1999 to 3.16%
for the three months ended March 31, 2000. The net interest
margin decreased from 3.95% for the three months ended March 31,
1999 to 3.48% for the three months ended March 31, 2000. The
Company's net interest margin has been adversely affected by the
rate increases since last year which have required the Company
to increase deposit rates more quickly than its loan portfolio
has been able to adjust. The average yield on interest-earning
assets decreased 14 basis points from 7.71% for the three months
ended March 31, 1999 to 7.57% for the three months ended March
31, 2000. The average cost on interest-bearing liabilities
decreased from 4.18% for the three months ended March 31, 1999
to 4.41% for the three months ended March 31, 2000.
The provision for loan losses amounted to $35,000 and $1,000
for the three months ended March 31, 1999 and 2000,
respectively. For the three months ended March 31, 2000 net
charge-offs were approximately $11,000. At March 31, 2000, the
allowance for loan losses represented 280% of total loans past
due more than ninety days. At March 31, 2000, management
reviewed the allowance for loan losses in relation to the
Company's performance with past collections and chargeoffs,
management's experience with the loan portfolio, and
observations of the general economic climate and loan loss
expectations. From this review and analysis, and based on
management's experience and judgment in managing the loan
portfolio, it was determined that an allowance for loan losses
of approximately $206,000 was adequate, and therefore, a $1,000
loan loss provision was recorded for the quarter ended March 31,
2000.
Non-interest income decreased $20,000 from $213,000 for the
three months ended March 31, 1999 to $193,000 for the three
months ended March 31, 2000. This decrease was the result of a
reduction in loan sale activity for the first quarter of 2000.
The Company continues to sell its fixed-rate loan product in the
secondary market. Gains on the sale of fixed-rate mortgage
loans recognized for the three months ended March 31, 2000 were
$70,000 as compared to $126,000 for the three months ended March
31, 1999. The Company saw an increase in loan fees and service
charge income during the three-month period of 2000. For the
three months ended March 31, 2000, loan fees and
service charges amounted to $101,000 as compared to $60,000 for
the three months ended March 31, 1999. Insurance commissions and
fees were $15,000 for the three months ended March 31, 2000 as
compared to $19,000 for the three months ended March 31, 1999.
Non-interest expense decreased $28,000 for the three months
ended March 31, 2000 compared to the three months ended March
31, 1999. Compensation and employee benefits decreased $28,000
from $436,000 for the three months ended March 31, 1999 to
$408,000 for the three months ended March 31, 2000. This
decrease was the result of various reductions in employee
related benefits such as the ESOP plan and employee incentive
plans. Deposit insurance premiums showed a reduction of $9,000
for the three-month period ended March 31, 2000 compared to
1999. Data processing increased $16,000 from $71,000 for the
three months ended March 31, 1999 to $87,000 for the three
months ended March 31, 2000. These expenses are affected by the
volume of transactions processed by the data center. Other
expense decreased $7,000 from $136,000 for the three months
ended March 31, 1999 to $129,000 for the three months ended
March 31, 2000.
Other comprehensive income is composed of net unrealized holding
gains and losses on securities classified as available for sale
in accordance with SFAS No. 115. For the three months ending
March 31, 1999 and 2000, the Company reported net unrealized
gains (losses) on securities, net of tax benefits, of ($1,000)
and $13,000, respectively. The accumulated other comprehensive
income at March 31, 2000 was ($410,000). Even though the
Company's mortgage-backed securities are classified as available
for sale, management tends to hold these investments while
principal paydowns are received or until market conditions
indicate that it is advantageous for the sale of selected
securities.
LIQUIDITY AND CAPITAL RESOURCES. The Company's primary sources
of funds are deposits, borrowings from the Federal Home Loan
Bank and proceeds from principal and interest payments on loans
and mortgage-backed securities. While maturities and scheduled
amortization of loans are a predictable source of funds, deposit
flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions and competition. The
Company's primary investing activity is loan originations. The
Company maintains liquidity levels adequate to fund loan
commitments, investment opportunities, deposit withdrawals and
other financial commitments. As of March 31, 2000, the Company
had under construction a new branch facility with an estimated
completion date of May 2000. The Company also had unfunded loan
commitments of approximately $1.5 million.
At March 31, 2000, management had no knowledge of any trends,
events or uncertainties that will have or are reasonably likely
to have material effects on the liquidity, capital resources or
operations of the Company. Further, at March 31, 2000,
management was not aware of any current recommendations by the
regulatory authorities that, if implemented, would have such an
effect. The Savings Bank exceeded all of its capital
requirements at March 31, 2000.
YEAR 2000 COMPLIANCE. Like many financial institutions, we rely
on computers to conduct our business and information systems
processing. Industry experts were concerned that on January 1,
2000, some computers might not be able to interpret the new year
properly, causing computer malfunctions. Some banking industry
experts remain concerned that some computers
may not be able to interpret additional dates in the year 2000
properly. We have operated and evaluated our computer operating
systems following January 1, 2000 and have not identified any
errors or experienced any computer system malfunctions. We will
continue to monitor our information systems to assess whether
our systems are at risk of misinterpreting any future dates and
will develop, if needed, appropriate contingency plans to
prevent any potential system malfunction or correct any system
failures. We have not been informed of any such problem
experienced by our vendors or our customers.
However, it is too early to conclude that there will not be any
problems arising from the Year 2000 issue, particularly with
some of our vendors or customers. We will continue to monitor
our significant vendors of goods and services and customers with
respect to any Year 2000 problems they may encounter, as those
issues may effect our ability to continue operations, or might
adversely affect the our financial position, results of
operations and cash flows. At this time, we do not believe that
these potential problems will materially impact the ability to
continue our operations. However, no assurance can be given
that this will be the case.
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings
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From time to time, the Company and any subsidiaries may be a
party to various legal proceedings incident to its or their
business. At March 31, 2000, there were no legal proceedings to
which the Company or any subsidiary was a party, or to which of
any of their property was subject, which were expected by
management to result in a material loss.
Item 2. Changes in Securities and Use of Proceeds
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None
Item 3. Defaults Upon Senior Securities
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None
Item 4. Submission of Matters to a Vote of Security Holders
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None
Item 5. Other Information
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None
Item 6. Exhibits and Reports on Form 8-K
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(a) The following exhibits are filed as a part of
this report:
3.1 /1/ Charter of Twin City Bancorp, Inc.
3.2 /1/ Bylaws of Twin City Bancorp, Inc.
4/1/ Form of Common Stock Certificate
10.1 /1/,/2/ Twin City Bancorp, Inc. Incentive
Compensation Plan, as amended
10.2 /1/ Twin City Bancorp, Inc. Deferred
Compensation Plan
10.3 /3/ Employment Agreements between Twin City
Bancorp, Inc. and Twin City Federal
Savings Bank and Thad R. Bowers
10.4 /3/ Severance Agreements between Twin City
Bancorp, Inc. and Twin City Federal
Savings Bank and Judith O.
Bowers, Robert C. Glover, Michael H.
Phipps, Joyce C. Rouse and John M.
Wolford
10.5 /1/ Twin City Federal Savings Bank
Supplemental Executive Retirement
Agreement
10.6 /3/ Twin City Bancorp, Inc. 1995 Stock Option
and Incentive Plan
10.7 /3/ Twin City Bancorp, Inc. Management
Recognition Plan Financial Data Schedule
27 Financial Data Schedule
(b) Reports on Form 8-K. The Company did not file a
current report on Form 8-K during the quarter covered by this
report.
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/1/ Incorporated by reference to Company's Registration
Statement on Form S-1 No. 33-84196
/2/ Incorporated by reference to Company's Quarterly Report on
Form 10-QSB for the fiscal quarter ended September 30, 1995
/3/ Incorporated by reference to Company's Quarterly Report on
Form 10-QSB for the fiscal quarter ended March 31, 1995
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant has caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
TWIN CITY BANCORP, INC.
Date May 12, 2000 By /s/ Thad R. Bowers
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Thad R. Bowers
President and Chief Executive Officer
(Duly Authorized Representative and
Principal Executive and Financial
Officer)