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 June 30, 1997
---------------------------------------------
Commission File Number: 0-25290
--------------------------------
Twin City Bancorp, Inc.
--------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Tennessee 62-1582947
- ----------------------- -----------------
(State of incorporation) (I.R.S. Employer
Identification No.)
310 State Street, Bristol Tennessee 37620
- -----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(423) 989-4400
--------------
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 June 30, 1997, there are 853,484 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
----------------------------------------
Bristol, Tennessee
------------------
INDEX
-----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - (Unaudited) as of December
31, 1996 and June 30, 1997
Consolidated Statements of Income - (Unaudited) for the
six month and three month periods ended June 30, 1996
and 1997
Consolidated Statements of Cash Flows- (Unaudited) for
the six month periods ended June 30, 1996 and 1997
Notes to (Unaudited) Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
TWIN CITY BANCORP, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
(in thousands)
December 31, June 30,
1996 1997
------------ ---------
Cash and due from banks $ 920 $ 1,910
Interest-earning deposits 2,003 1,984
Federal funds - 1,650
Investment securities (amortized cost -
$8,351 and $7,819) 8,354 7,823
Loans receivable, net 78,177 76,504
Loans held for sale 30 149
Mortgage-backed securities (amortized cost -
$11,716 and $12,953) 11,649 12,971
Premises and equipment, net 1,767 2,218
Real estate, net 233 90
Federal Home Loan Bank stock 671 695
Interest receivable 378 433
Other 859 918
-------- --------
Total Assets $105,041 $107,345
======== ========
(continued on next page)
TWIN CITY BANCORP, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
(in thousands)
December 31, June 30,
1996 1997
------------ --------
Liabilities and Stockholders' Equity
- ------------------------------------
Deposits $85,689 $90,387
Federal Home Loan Bank advances 5,100 1,000
Advance payments by borrowers for taxes
and insurance 282 1,017
Accrued expenses and other liabilities 313 491
Income taxes payable:
Current - 219
Deferred 272 431
-------- --------
Total Liabilities 91,656 93,545
-------- --------
Stockholders' Equity
Common stock ($1 par value, 8,000,000
shares authorized; 853,484 shares issued and
outstanding at December 31, 1996 and
June 30, 1997) 854 854
Paid-in capital 7,134 7,165
Retained earnings, substantially restricted 6,283 6,540
Unearned compensation:
Employee stock ownership plan (575) (539)
Management recognition plan (271) (235)
Net unrealized gains (losses) on securities
available-for-sale, net of income taxes (40) 15
-------- --------
Total Stockholders' Equity 13,385 13,800
-------- --------
Total Liabilities and Stockholders' Equity $105,041 $107,345
======== ========
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)
Six Months Ended Three Months Ended
June 30, June 30,
----------------- ------------------
1996 1997 1996 1997
---- ---- ---- ----
Interest income:
Loans $3,241 $3,305 $1,631 $1,671
Mortgage-backed securities 402 442 197 236
Investment securities 284 243 157 127
Interest-bearing deposits 76 57 32 35
------ ------ ------ ------
Total interest income 4,003 4,047 2,017 2,069
------ ------ ------ ------
Interest expense:
Deposits 1,890 2,007 940 1,041
Federal Home Loan Bank advances 93 71 47 15
------ ------ ------ ------
Total interest expense 1,983 2,078 987 1,056
------ ------ ------ ------
Net interest income 2,020 1,969 1,030 1,013
Provision for loan losses 50 64 25 42
------ ------ ------ ------
Net interest income after
provision for loan losses 1,970 1,905 1,005 971
------ ------ ------ ------
Non-interest income:
Loan fees and service charges 148 164 71 81
Insurance commission and fees 41 28 24 19
Gain on sale of securities - (2) - (2)
Gain on sale of loans 79 111 33 31
Income from rental of real estate 65 35 32 3
Other 23 16 16 4
------ ------ ------ ------
Total non-interest income 356 352 176 136
------ ------ ------ ------
Non-interest expense:
Compensation and employee benefits 729 840 373 425
Net occupancy expense 115 128 57 63
Deposit insurance premiums 95 28 48 14
Data processing 100 108 48 52
Provision for real estate losses 30 10 15 -
Other 302 295 165 119
------ ------ ------ ------
Total non-interest expense 1,371 1,409 706 673
------ ------ ------ ------
Income before income taxes 955 848 475 434
Income tax expense 362 336 179 173
------ ------ ------ ------
Net income $ 593 $ 512 $ 296 $ 261
====== ====== ====== ======
Dividends paid per share $ 0.46 $ 0.32 $ 0.31 $ 0.16
====== ====== ====== ======
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)
Six Months Ended
June 30,
-----------------
1996 1997
---- ----
Net cash provided (used) by
operating activities $ 532 $ 956
--------- --------
Cash flows from investing activities:
Purchase of investment securities
classified as available-for-sale (1,972) (1,994)
Maturities of investment securities 1,000 2,525
Purchase of certificates of deposit (98) -
Maturities of certificates of deposit 98 -
Principal payments on mortgage-backed
securities 1,062 1,383
Purchase of mortgage-backed securities
classified as available-for-sale (1,526) (875)
Proceeds from sale of mortgage-backed
securities - 422
Increase in cash surrender value of
life insurance (1) (3)
Proceeds from sale of real estate - 461
Net decrease (increase) in loans originated (906) 583
Purchase of loans (1,082) (1,387)
Purchase of premises and equipment (30) (528)
--------- --------
Net cash provided (used) by
investing activities (3,455) 587
--------- --------
Cash flows from financing activities:
Net increase (decrease) in deposits (320) 4,698
Increase in advance payments by borrowers
for taxes and insurance 668 735
Proceeds from FHLB advances 1,400 9,750
Repayment of FHLB advances (900) (13,850)
Dividends paid (382) (255)
Acquisition of treasury stock (31) -
--------- --------
Net cash provided (used) by
financing activities 435 1,078
--------- --------
Net increase (decrease) in cash (2,488) 2,621
Cash at beginning of year 4,909 2,923
--------- --------
Cash at end of the quarter $ 2,421 $ 5,544
========= ========
(continued on next page)
TWIN CITY BANCORP, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
Six Months Ended
June 30,
-----------------
1996 1997
---- ----
Supplemental disclosures:
Noncash investing and financing activities:
Loans sold in exchange for mortgage-backed
securities $ -- $ 2,183
======= =======
Unrealized gain (loss) on securities
available-for-sale $ (175) $ 55
======= =======
Cash paid during the period for:
Interest $ 1,995 $ 2,077
======== ========
Income taxes (net of refunds) $ 250 $ 8
======= =======
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
-----------------------------------------------------
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
-------------------------------------------
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. - Stock Option Plan
-----------------
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 June 30, 1997, 22,460
non-incentive stock options have been granted to directors and
become exercisable on a cumulative basis in equal installments
over a five year period. The incentive stock options awarded to
officers and other key employees totalled 64,988 at June 30, 1997
with 62,888 becoming exercisable on a cumulative basis in equal
installments over a five year period, and 2,100 exercisable upon
the date of option grant. As of June 30, 1997, 87,448 options
have been granted, of which none have been exercised. Options
totaling
TWIN CITY BANCORP, INC.
AND SUBSIDIARIES
NOTES TO (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS
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 June 30, 1997,
36,239 options are excercisable.
Note 5. - Management Recognition 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 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 June 30, 1997, 29,208 shares of common stock had been
purchased to fund the MRP and the remaining 6,728 shares will be
purchased over the remaining vesting period. The unamortized
balance of unearned compensation is reflected as a reduction of
stockholders' equity. For the six months and quarter ended June
30, 1997, $61,000 and $31,000 have been recognized as
compensation expense, respectively.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
- ----------------------------------------------------------
The Company's total consolidated assets increased $2.3
million, or 2.2% to $107.3 million at June 30, 1997 from $105.0
million at December 31, 1996. Interest-earning deposits and
federal funds increased $1.6 million as the Company has
experienced an increase in net cash flows. Net loans receivable
decreased $1.7 million or 2.1% from $78.2 million at December 31,
1996 to $76.5 million at June 30, 1997. The Company originated
115 mortgage loans during the six months ended June 30, 1997 as
compared to 170 originations during the six months ended June 30,
1996. The decrease in 1997 over 1996 was due to a general
increase in the prevailing market rates for the Company's
mortgage products in the first quarter of 1997. The Company has
sold the majority of its fixed-rate originations during the six
months ended June 30, 1997 to the Federal Home Loan Mortgage
Corporation (FHLMC), servicing retained and without recourse.
Total real estate loans amounted to $51.9 million at June 30,
1997 as compared to $53.6 million at December 31, 1996.
Consumer/commercial loans remained constant with $26.1 million at
December 31, 1996 and $26.1 million at June 30, 1997. The
Company's portfolio of investment securities decreased $531,000
or 6.4% from $8.4 million at December 31, 1996 to $7.8 million at
June 30, 1997. The Company's portfolio of mortgage-backed
securities increased $1.4 million or 11.4% from $11.6 million at
December 31, 1996 to $13.0 million at June 30, 1997. The
Company's investment in premises and equipment, net of
accumulated depreciation increased $451,000 or 25.5% from $1.8
million at December 31, 1996 to $2.2 million at June 30, 1997.
During the six months ended June 30, 1997, the Company began
extensive improvements to its Volunteer Parkway branch in
Bristol, Tennessee. The interior of the branch is being upgraded
along with an expansion of the under-roof-area. Improvements to
traffic circulation and an increase in the number of drive-
through lanes, and the installation of an automatic teller
machine are also underway. More funds will be appropriated
toward the completion of the renovations over the next few
quarters. Management believes that these renovations will result
in improved customer service and convenience and will not have an
adverse material effect to the Company's financial condition or
results of operations. Real estate, net decreased $143,000 from
$233,000 at December 31, 1996 to $90,000 at June 30, 1997. The
decrease was primarily attributable to the sale of the Company's
commercial office building in Knoxville, Tennessee for a gross
sales price of $250,000 and accordingly, the Company recognized a
gain on the sale of the building of approximately $17,000.
Deposits increased $4.7 million or 5.5% from $85.7 million
at December 31, 1996 to $90.4 million at June 30, 1997. During
the quarter ended June 30, 1997, the Company secured governmental
deposits of approximately $4.4 million. Subsequently, Federal
Home Loan Bank advances decreased $4.1 million at June 30, 1997
from December 31, 1996.
Total stockholders' equity has increased $415,000, or 3.1%
from $13.4 million at December 31, 1996 to $13.8 million at June
30, 1997. The Company posted net income of $512,000 for the six
months ended June 30, 1997 while paying dividends totaling $0.32
per share of common stock outstanding, or $255,000. During the
six months ended June 30, 1997, management pursued further
funding for the Company's Management Recognition Plan (MRP) by
purchasing 1,300 shares of common stock at a total purchase price
of $25,000, while recognizing an expense of $61,000 resulting in
a net decrease of $36,000 in unearned compensation for the MRP.
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 on
securities available-for-sale are reported as a component of
stockholders' equity. At June 30, 1997, the Company reported net
unrealized gains on securities available-for-sale, net of income
taxes, of $15,000 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 six months ended June 30, 1997
decreased $51,000 from the six months ended June 30, 1996, and
for the three months ended June 30, 1997 decreased $17,000 as
compared to the three months ended June 30, 1996. The decreases
were primarily attributable to a decrease in the interest rate
spread which decreased from 3.61% for the six months ended June
30, 1996 to 3.45% for the six months ended June 30, 1997 and
decreased from 3.66% for the three months ended June 30, 1996 to
3.52% for the three months ended June 30, 1997. The net interest
margin decreased from 4.14% for the six months ended June 30,
1996 to 3.92% for the six months ended June 30, 1997 and
decreased from 4.19% for the three months ended June 30, 1996 to
3.99% for the three months ended June 30, 1997. The average
yield on interest-earning assets decreased 15 basis points from
8.21% for the six months ended June 30, 1996 to 8.06% for the six
months ended June 30, 1997 and decreased 4 basis points from
8.20% for the three months ended June 30, 1996 to 8.16% for the
three months ended June 30, 1997. The average cost on interest-
bearing liabilities increased from 4.60% for the six months ended
June 30, 1996 to 4.61% for the six months ended June 30, 1997 and
increased from 4.54% for the three months ended June 30, 1996 to
4.64% for the three months ended June 30, 1997. The average
balance of interest-earning assets was $97.5 million for the six
months ended June 30, 1996 as compared to $100.4 million for the
six months ended June 30, 1997 and was $98.3 million for the
three months ended June 30, 1996 as compared to $101.5 million
for the three months ended June 30, 1997. The average balance of
interest-bearing liabilities was $86.2 million for the six months
ended June 30, 1996 as compared to $90.2 million for the six
months ended June 30, 1997 and was $87.0 million for the three
months ended June 30, 1996 as compared to $91.1 million for the
three months ended June 30, 1997.
The provisions for loan losses amounted to $50,000, $64,000,
$25,000 and $42,000 for the six months and three months ended
June 30, 1996 and 1997, respectively. At June 30, 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 $220,000 and therefore
a $42,000 provision was recorded for the quarter ended June 30,
1997. At June 30, 1997 the allowance represented 259% of total
loans past due more than ninety days.
Non-interest income decreased $4,000 from $356,000 for the
six months ended June 30, 1996 to $352,000 for the six months
ended June 30, 1997 and decreased $40,000 from $176,000 for the
three months ended June 30, 1996 to $136,000 for the three months
ended June 30, 1997. For the six months ended June 30, 1997 loan
fees and service charges amounted to $164,000 as compared to
$148,000 for the six months ended June 30, 1996 and amounted to
$81,000 for the three months ended June 30, 1997 as compared to
$71,000 for the three months ended June 30, 1996. Gain on the
sale of fixed-rate mortgage loans to the FHLMC recognized for the
six months ended June 30, 1996 was $79,000 as compared to
$111,000 for the six months ended June 30, 1997 and was $33,000
for the three months ended June 30, 1996 as compared to $31,000
for the three months and June 30, 1997. Insurance commission and
fees was $28,000 for the six months ended June 30, 1997 as
compared to $41,000 for the six months ended June 30, 1996 and
was $19,000 for the three months ended June 30, 1997 as compared
to $33,000 for the three months ended June 30, 1996. Income from
rental of real estate amounted to $35,000 for the six months
ended June 30, 1997 as compared to $65,000 for the six months
ended June 30, 1996 and $3,000 for the three months ended June
30, 1997 as compared to $32,000 for the three months ended June
30, 1996.
Non-interest expense for the six months ended June 30, 1997
was 2.67% of average assets as compared to 2.69% for the six
months ended June 30, 1996. Non-interest expense increased
$38,000 from the six months ended June 30, 1996 to the six months
ended June 30, 1997, and decreased $33,000 from $706,000 for the
three months ended June 30, 1996 to $673,000 for the three months
ended June 30, 1997. Compensation and employee benefits
increased $111,000 from $729,000 for the six months ended June
30, 1996 to $840,000 for the six months ended June 30, 1997 and
increased $52,000 from $373,000 for the three months ended June
30, 1996 to $425,000 for the three months ended June 30, 1997.
The increase for the three and six month periods were a direct
result of normal salary and wage increases and the recognition of
additional compensation from the cost of the Company's MRP.
Deposit insurance premiums decreased $67,000 from $95,000 for the
six months ended June 30, 1996 to $28,000 for the six months
ended June 30, 1997 and decreased $34,000 from $48,000 for the
three months ended June 30, 1996 to $14,000 for the three months
ended June 30, 1997. Data processing increased $8,000 from
$100,000 for the six months ended June 30, 1996 to $108,000 for
the six months ended June 30,1997. Other expense decreased
$7,000 from $302,000 for the six months ended June 30, 1996 to
$295,000 for the six months ended June 30, 1997 and decreased
$46,000 from $165,000 for the three months ended June 30, 1996 to
$119,000 for the three months ended June 30, 1997 as management
has attempted to control its miscellaneous costs of doing
business in recent years.
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
-----------------
From time to time, the Company and any subsidiaries may be a
party to various legal proceedings incident to its or their
business. At June 30, 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
---------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On May 23, 1997, the registrant held its annual meeting
of stockholders. At the meeting, the following director
was elected by the stockholders to serve for a three year
term:
Votes
----------------------- Broker
For Withheld Absententions Non-Votes
--- -------- ------------- ---------
Paul R. Wolford 592,233 1,350 - -
Item 5. Other Information
-----------------
None
(continued on next page.)
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: ______, 1997 By /s/ Thad R. Bowers
-----------------------------
Thad R. Bowers
President and Chief Executive Officer
(Principal Executive and Financial
Officer)
Date: ______, 1997 By /s/ Albert Joseph Vance, II
-----------------------------
Albert Joseph Vance, II
Assistant Treasurer
(Principal Accounting Officer)