FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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Commission File Number: 0-25290
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Twin City Bancorp, Inc.
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(Exact name of registrant 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)
Registrant's telephone number, including area code:(423) 989-4400
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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 require
ments for the past ninety days: Yes __x__ No ___
As of March 31, 1997, there are 898,404 shares of the
registrant's Common Stock, par value $1.00 per share, issued and
outstanding.
Transitional small business disclosure format (check one):
Yes _____ No __x__
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, 1996 and March 31, 1997
Consolidated Statements of Income - (Unaudited) for the
three month periods ended March 31, 1996 and 1997
Consolidated Statements of Cash Flows- (Unaudited) for
the three month periods ended March 31, 1996 and 1997
Notes to (Unaudited) Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
TWIN CITY BANCORP, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
(in thousands)
December 31, March 31,
1996 1997
------------ ---------
Assets
- ------
Cash and due from banks $ 920 $ 2,202
Interest-earning deposits 2,003 443
Investment securities (amortized cost -
$8,351 and $8,320) 8,354 8,285
Loans receivable, net 78,177 76,211
Loans held for sale 30 726
Mortgage-backed securities (amortized cost -
$11,716 and $12,752) 11,649 12,605
Premises and equipment, net 1,767 1,824
Real estate, net 233 91
Federal Home Loan Bank stock 671 682
Interest receivable 378 370
Other 859 827
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Total Assets $105,041 $104,266
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(continued on next page)
TWIN CITY BANCORP, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
(in thousands)
December 31, March 31,
1996 1997
------------ ---------
Liabilities and Stockholders' Equity
- ------------------------------------
Deposits $85,689 $85,482
Federal Home Loan Bank advances 5,100 4,000
Advance payments by borrowers for taxes
and insurance 282 650
Accrued expenses and other liabilities 313 282
Income taxes payable:
Deferred 272 353
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Total Liabilities 91,656 90,767
Stockholders' Equity
Common stock ($1 par value, 8,000,000
shares authorized; 853,484 shares issued
and outstanding at December 31, 1996 and
March 31, 1997) 854 854
Paid-in capital 7,134 7,149
Retained earnings, substantially restricted 6,283 6,406
Unearned compensation:
Employee stock ownership plan (575) (557)
Management recognition plan (271) (241)
Net unrealized gains (losses) on securities
available-for-sale, net of income taxes (40) (112)
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Total Stockholders' Equity 13,385 13,499
-------- --------
Total Liabilities and
Stockholders' Equity $105,041 $104,266
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
TWIN CITY BANCORP, INC.
AND SUBSIDIARIES
Consolidated Statements of Income
(unaudited)
(in thousands)
Three Months Ended
March 31,
-----------------
1996 1997
---- ----
Interest income:
Loans $1,610 $1,634
Mortgage-backed securities 205 206
Investment securities 127 116
Interest-earning deposits 44 22
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Total interest income 1,986 1,978
Interest expense:
Deposits 950 966
Federal Home Loan Bank advances 46 56
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Total interest expense 996 1,022
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Net interest income 990 956
Provision for loan losses 25 22
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Net interest income after
provision for loan losses 965 934
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Non-interest income:
Loan fees and service charges 77 83
Insurance commission and fees 17 9
Gain on sale of loans 46 80
Income from rental of real estate 33 32
Other 7 12
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Total non-interest income 180 216
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Non-interest expense:
Compensation and employee benefits 356 415
Net occupancy expense 58 65
Deposit insurance premiums 47 14
Data processing 52 56
Provision for real estate losses 15 10
Other 137 176
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Total non-interest expense 665 736
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Income before income taxes 480 414
Income tax expense 183 163
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Net income $ 297 $ 251
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Dividends paid per share $ 0.15 $ 0.16
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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,
-----------------
1996 1997
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Net cash provided (used) by
operating activities $ 145 $ 411
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Cash flows from investing activities:
Purchase of investment securities
classified as available-for-sale (984) (995)
Maturities of investment securities 1,000 1,025
Maturities of certificates of deposit 98 -
Purchase of certificates of deposit (98) -
Principal payments on mortgage-backed
securities 428 461
Purchase of mortgage-backed securities
classified as available-for-sale (1,026) -
Increase in cash surrender value of
life insurance (1) (1)
Net decrease (increase) in loans originated 901 1,267
Purchase of loans (732) (1,601)
Purchase of premises and equipment - (95)
Proceeds from sale of real estate - 317
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Net cash provided (used) by
investing activities (414) 378
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Cash flows from financing activities:
Net increase (decrease) in deposits 183 (207)
Increase in advance payments by borrowers
for taxes and insurance 278 368
Repayment of FHLB advances (500) (9,700)
Proceeds from FHLB advances - 8,600
Dividends paid (134) (128)
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Net cash provided (used) by
financing activities (173) (1,067)
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Net increase (decrease) in cash (442) (278)
Cash at beginning of period 4,909 2,923
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Cash at end of the period $ 4,467 $ 2,645
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(continued on next page)
TWIN CITY BANCORP, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
Three Months Ended
March 31,
-----------------
1996 1997
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Supplemental disclosures:
Noncash investing and financing activities:
Loans sold in exchange for mortgage-backed
security $ - $ 1,501
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Unrealized loss on securities available-for-
sale net of income taxes $ 131 $ 72
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Capitalized mortgage servicing rights $ 68 $ 85
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Cash paid during the period for:
Interest $ 1,010 $ 1,019
Income taxes $ 23 $ -
======= =======
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 Principals 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. and its subsidiary, Twin City Federal Savings
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 interim periods are not
necessarily indicative of the results that may be expected for
the entire fiscal year.
Note 2. - Cash Flow Information
---------------------
As presented in the consolidated statements of cash flows, cash
and cash equivalents include cash on hand, interest-earning
deposits in other banks, and federal funds sold. The Company
considers all highly liquid instruments with original maturities
of three months or less to be cash equivalents.
Note 3. - Retained Earnings, Substantially Restricted
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Retained earnings represents the accumulated net income of the
Company since its origination date. In connection with the
insurance of savings accounts for the Bank, the Federal Deposit
Insurance Corporation (FDIC) requires that certain minimum
amounts be restricted to absorb certain losses as specified in
the insurance of accounts regulations. Because restricted
retained earnings is not related to amounts of losses actually
anticipated, the appropriations thereto have not been charged to
income in the accompanying consolidated financial statements.
Furthermore, the use of retained earnings by the Bank is
restricted by certain requirements of the Internal Revenue Code.
There are further restrictions on retained earnings directed by
the Office of Thrift Supervision where by the Bank is subject to
maintain a minimum amount of regulatory capital as well as a
liquidation account for the benefit of eligible account holders
who continue to maintain their accounts at the Bank after the
conversion.
Note 4. - New Accounting Standards
------------------------
In June 1996, the FASB issued SFAS No. 125, Accounting for the
Transfer and Servicing of Financial Assets and Extinguishment of
Liabilities ("SFAS 125"). SFAS 125 supersedes SFAS 122,
Accounting for Mortgage Servicing Rights. SFAS 125 provides
accounting and reporting standards for transfers and servicing of
financial assets and the extinguishment of liabilities based on
consistent application of a financial components approach that
focuses on control. Under the financial components approach,
after a transfer of financial assets, an entity recognizes all
financial and servicing assets it controls and liabilities it has
incurred and derecognizes financial assets it no longer controls
and liabilities that have been extinguished. SFAS 125 is
effective for transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1996,
and is to be applied prospectively. Earlier or retroactive
application is not permitted. At the present time, the statement
has no material effect on the consolidated financial statements.
TWIN CITY BANCORP, INC.
AND SUBSIDIARIES
NOTES TO (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS
Note 5. - Stock Option Plan
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In 1995, the Company adopted a stock option plan for the benefit
of directors, officers, and other key employees of the Company.
The number of shares of common stock reserved for issuance under
the stock option plan was equal to 10% of the total number of
common shares issued pursuant to the Company's offering. The
plan provides for incentive options for officers and employees
and non-incentive options for directors. The plan is
administered by a committee of at least three directors of the
Company. The option exercise price cannot be less than the fair
value of the underlying common stock as of the date of the option
grant, and the maximum option term cannot exceed ten years. The
number of shares of common stock authorized under the stock
option and incentive plan was 89,840. As of March 31, 1997,
22,460 non-incentive stock options have been granted to directors
and are exercisable on a cumulative basis in equal installments
over a five year period. The incentive stock options awarded to
officers and other key employees totaled 64,988 at March 31, 1997
with 62,888 exercisable on a cumulative basis in equal
installments over a five year period, and 2,100 exercisable upon
the date of option grant. The options awarded to directors and
officers which are exercisable on a cumulative basis in equal
installments over a five year period began vesting on May 24,
1996 and will be fully vested on May 24, 2000. As of March 31,
1997, 87,448 options have been granted, of which none have been
exercised. Options totaling 85,348 were granted with an exercise
price of $14 per share, 1,500 were granted with an exercise price
of $16.875 per share and the remaining 600 at $17.50 per share.
As of March 31, 1997, 19,170 options are exercisable.
Note 6. - Management Recognition and Retention Plan
-----------------------------------------
In 1995, the Company established a management recognition plan
("MRP") under which 35,936 shares of common stock were awarded to
participants. The plan share awards were granted to certain
employees and officers of the Company who began vesting on May
24, 1996 and will be fully vested on May 24, 2000. The number of
shares awarded to certain employees and officers was 35,936.
Compensation expenses, in the amount of the fair value of the
common stock at the date plan shares are purchased, will be
recognized during the periods the participants become vested. As
of March 31, 1997, 27,908 shares of common stock had been
purchased to fund the MRP and the remaining 8,028 shares will be
purchased over the vesting period. The unamortized balance of
unearned compensation is reflected as a reduction of
stockholders' equity. For the quarter ended March 31, 1997,
$30,000 has been recognized as compensation expense.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations For the Three
Months Ended March 31, 1997
-------------------------------------------------
The Company's total consolidated assets decreased $775,000,
or 0.7% to $104.3 million at March 31, 1997 from $105.0 million
at December 31, 1996. Cash and due from banks and interest-
earning deposits decreased $278,000 from $2.9 million at December
31, 1996 to $2.6 million at March 31, 1997. Net loans receivable
decreased $2.0 million or 2.5% from $78.2 million at December 31,
1996 to $76.2 million at March 31, 1997. The Company originated
49 mortgage loans during the quarter ended March 31, 1997 as
compared to 66 originations during the quarter ended March 31,
1996. The decrease in originations in 1997 over 1996 was due to
a general increase in the prevailing market rates for mortgage
loans. The Company has sold a majority of its fixed-rate
originations during the first quarter of 1997 to the Federal Home
Loan Mortgage Corporation, servicing retained and without
recourse. Total real estate loans amounted to $52.9 million at
March 31, 1997 as compared to $53.6 million at December 31, 1996.
Consumer/commercial lending decreased by $473,000 or 1.8%, from
$26.1 million at December 31, 1996 to $25.6 million at March 31,
1997. The decrease is attributable to a general increase in the
prevailing market interest rates for consumer and commercial
loans. The Company's portfolio of investment securities remained
constant with a balance of $8.3 million at March 31, 1997 as
compared to a balance of $8.4 million at December 31, 1996. The
Company's portfolio of mortgage-backed securities increased
$956,000, or 8.2%, from $11.6 million at December 31, 1996 to
$12.6 million at March 31, 1997. Real estate, net decreased
$142,000 from $233,000 at December 31, 1996 to $91,000 at March
31, 1997. The decrease was primarily attributable to the sale of
the Company's commercial office building in Knoxville, Tennessee.
During the quarter ended March 31, 1996, the Company sold the
commercial office building in Knoxville, Tennessee for a gross
sales price of $250,000 and accordingly, recognized a gain on the
sale of the building of approximately $17,000.
Deposits decreased $207,000, or 0.2% from $85.7 million at
December 31, 1996 to $85.5 million at March 31, 1997. Federal
Home Loan Bank advances decreased $1.1 million at March 31, 1997
from December 31, 1996.
Total stockholders' equity has increased $114,000, or 0.9%,
from $13.4 million at December 31, 1996 to $13.5 million at March
31, 1997. The Company posted net income of $251,000 for the
quarter ended March 31, 1997 while paying a dividend of $0.16 per
share of common stock, or $128,000. The Company, in accordance
with SFAS No.115, has classified its entire portfolio of
investment and mortgage-backed securities as available-for-sale.
Net unrealized gains and losses of securities classified as
available-for-sale are reported as a component of stockholders'
equity. At March 31, 1997, the Company reported net unrealized
losses on securities available-for-sale, net of income taxes, of
$112,000 as compared to net unrealized losses on securities
available-for-sale, net of income taxes, of $40,000 at December
31, 1996.
Net interest income for the three months ended March 31, 1997
decreased $34,000 over the three months ended March 31, 1996 from
$990,000 to $956,000. The decrease was primarily attributable to
a decrease in the interest rate spread which decreased from 3.56%
for the three months ended March 31, 1996 to 3.38% for the three
months ended March 31, 1997. The net interest margin decreased
from 4.10% for the three months ended March 31, 1996 to 3.85% for
the three months ended March 31, 1997. The average yield on
interest-earning assets decreased 26 basis points from 8.22% for
the three months ended March 31, 1996 to 7.96% for the three
months ended March 31, 1997, while the average cost on interest-
bearing liabilities only decreased 8 basis points from 4.66% for
the three months ended March 31, 1996 to 4.58% for the three
months ended March 31, 1997. The average balance of interest-
earning assets increased $2.7 million from $96.7 million at March
31, 1996 to $99.4 million at March 31, 1997, while the average
balance of interest-bearing liabilities increased $3.8 million
from $85.5 million at March 31, 1996 to $89.3 million at March
31, 1997.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations For the Three
Months Ended March 31, 1997
-------------------------------------------------
(Continued)
The provisions for loan losses amounted to $25,000 and
$22,000 for the three months ended March 31, 1996 and 1997
respectively. At March 31, 1997, management reviewed the
allowance for loan losses in relation to the Company's
performance with past collections and charge offs, 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
judgement in managing the loan portfolio, it was determined that
the allowance for loan losses needed to be $251,000 and therefore
a $22,000 provision was recorded in the quarter ending March 31,
1997. At March 31, 1997, the allowance represented 222% of total
loans past due more than ninety days.
Non-interest income increased $36,000 from $180,000 for the
three months ended March 31, 1996 to $216,000 for the three
months ended March 31, 1997. Loan fees and service charges
increased $6,000 from $77,000 for the three months ended March
31, 1996 to $83,000 for the three months ended March 31, 1997.
Gains on the sale of fixed-rate mortgage loans to the FHLMC
recognized in the three months ended March 31, 1997 was $80,000
as compared to $46,000 for the three months ended March 31, 1996.
Insurance commission and fees decreased $8,000 from $17,000 for
the three months ended March 31, 1996 to $9,000 for the three
months ended March 31, 1997.
Non-interest expense for the three months ended March 31,
1997 was 2.82% of average assets as compared to 2.63% for the
three months ended March 31, 1996. Non-interest expense
increased $71,000 from $665,000 for the three months ended March
31, 1996 to $736,000 for the three months ended March 31, 1997.
Compensation and employee benefits increased $59,000 or 16.6%
from $356,000 for the three months ended March 31, 1996 to
$415,000 for the three months ended March 31, 1997. The increase
for the three month period was a direct result of normal salary
and wage increases and the cost of additional personnel. Net
occupancy expense increased $7,000 from $58,000 for the three
months ended March 31, 1996 to $65,000 for the three months ended
March 31, 1997. For the three months ended March 31, 1997, a
provision for real estate losses of $10,000 was recognized.
Other expenses increased $39,000 from $137,000 for the three
months ended March 31, 1996 to $176,000 for the three months
ended March 31, 1997. Deposit insurance premiums decreased
$33,000 from $47,000 for the three months ended March 31, 1996 to
$14,000 for the three months ended March 31, 1997.
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, 1997, 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
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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
--------------------------------
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 Brenda N.
Baer, 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
27 Financial Data Schedule
_______________
(1) Incorporated by reference to Company's Registration 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
The Corporation did not file a current report on Form 8-K during
the quarter covered by this report.
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.
Date: May 15, 1997 By /s/ Thad R. Bowers
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Thad R. Bowers
President and Chief Executive Officer
(Principal Executive and Financial
Officer)
Date: May 15, 1997 By /s/ Albert Joseph Vance, II
-----------------------------
Albert Joseph Vance, II
Assistant Treasurer
(Principal Accounting Officer)