FORM 10-QSB
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SECURITIES AND EXCHANGE COMMISSION
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Washington, DC 20549
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QUARTERLY REPORT PURSUANT TO 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, 1999
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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
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As of March 31, 1999, there were 1,180,060 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
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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, 1998 and March 31, 1999
Consolidated Statements of Comprehensive Income -
(Unaudited) for the three-month periods ended March 31,
1998 and 1999
Consolidated Statements of Cash Flows - (Unaudited) for
the three-month periods ended March 31, 1998 and 1999
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
SIGNATURES
TWIN CITY BANCORP, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
(in thousands)
December 31, March 31,
1998 1999
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Assets
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Cash and due from banks $ 2,260 $ 2,384
Interest-earning deposits 8,081 4,968
Investment securities available for
sale (amortized cost - $1,505 and
$1,001) 1,512 1,008
Loans receivable, net 81,428 82,854
Loans held for sale 1,787 959
Mortgage-backed securities available
for sale (amortized cost -
$12,395 and $15,986) 12,429 16,019
Premises and equipment, net 3,241 3,240
Real estate, net 237 116
Federal Home Loan Bank stock 773 786
Interest receivable 224 292
Other 1,273 1,407
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Total assets $113,245 $114,033
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(continued on next page)
December 31, March 31,
1998 1999
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Liabilities and Stockholders' Equity
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Deposits $ 89,112 $ 89,489
Federal Home Loan Bank advances 8,500 8,500
Advance payments by borrowers for taxes
and insurance 243 642
Accrued expenses and other liabilities 330 413
Income taxes payable:
Current 97 461
Deferred 811 513
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Total liabilities 99,093 100,018
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Stockholders' Equity
Common stock ($1 par value, 8,000,000
shares authorized; 1,201,691 shares issued
and outstanding at December 31, 1998 and
1,180,060 shares issued and outstanding at
March 31, 1999) 1,220 1,180
Paid-in capital 6,917 6,705
Retained earnings, substantially restricted 6,824 6,655
Treasury stock, 17,739 & 0 shares, at cost (238) --
12/31/98 and 3/31/99, respectively
Unearned compensation:
Employee stock ownership plan (431) (412)
Management recognition plan (165) (137)
Accumulated other comprehensive income 25 24
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Total stockholders' equity 14,152 14,015
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Total liabilities and stockholders'
equity $113,245 $114,033
======== ========
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)
Three Months Ended
March 31,
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1998 1999
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Interest income:
Loans $1,762 $1,771
Mortgage-backed securities 271 229
Investment securities 55 18
Interest-earning deposits 63 65
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Total interest income 2,151 2,083
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Interest expense:
Deposits 1,069 911
Federal Home Loan Bank advances 14 104
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Total interest expense 1,083 1,015
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Net interest income 1,068 1,068
Provision for loan losses 45 35
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Net interest income after
provision for loan losses 1,023 1,033
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Non-interest income:
Loan fees and service charges 62 60
Insurance commission and fees 17 19
Gain on sale of securities 13 --
Gain on sale of loans 77 126
Other 11 8
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Total non-interest income 180 213
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Non-interest expense:
Compensation and employee benefits 452 436
Net occupancy expense 81 98
Deposit insurance premiums 14 14
Data processing 63 71
Other 124 136
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Total non-interest expense 734 755
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(continued on next page)
TWIN CITY BANCORP, INC.
AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(unaudited)
(in thousands)
Three Months Ended
March 31,
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1998 1999
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Income before income taxes 469 491
Income tax expense 185 196
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Net income 284 295
Other comprehensive income:
Net unrealized gains (losses) on securities
available for sale, net of tax benefit of
$31 & $0, at 12/31/98 & 3/31/99, respectively (51) (1)
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Comprehensive income $ 233 $ 294
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Basic net income per share $ .24 $ .26
Diluted net income per share $ .23 $ .25
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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1998 1999
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Net cash provided (used) by
operating activities $ 394 $ 1,224
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Cash flows from investing activities:
Maturities of investment securities 1,000 500
Proceeds from sale of mortgage-backed
securities 1,788 --
Principal payments on mortgage-backed
securities 955 1,614
Purchase of mortgage-backed securities
classified as available for sale (4,091) (4,238)
Net decrease (increase) in loans originated 589 (1,791)
Increase in cash surrender value of
life insurance (2) --
Purchase of loans (1,372) (650)
Proceeds from sale of real estate -- 121
Purchase of premises and equipment (321) (62)
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Net cash provided (used) by
investing activities (1,454) (4,506)
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Cash flows from financing activities:
Net increase (decrease) in deposits (348) 377
Increase in advance payments by borrowers
for taxes and insurance 367 399
Proceeds from FHLB advance 1,500 --
Dividends paid (120) (172)
Acquisition of treasury stock (123) (311)
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Net cash provided (used) by
financing activities (1,276) 293
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Net increase (decrease) in cash 216 (2,989)
Cash at beginning of period 6,600 10,341
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Cash at end of the period $ 6,816 $ 7,352
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Supplemental disclosures:
Noncash investing and financing activities:
Loans sold in exchange for mortgage-backed
security $ -- $ 1,106
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Foreclosed real estate $ -- $ 29
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Unrealized loss on securities
available for sale net, of income taxes $ 51 $ --
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Cash paid during the period for:
Interest $ 1,055 $ 1,012
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Income taxes $ 162 $ 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 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 1999 interim periods are not necessarily
indicative of the results that may be expected for the entire
fiscal year.
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, 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. 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.
TWIN CITY BANCORP, INC.
AND SUBSIDIARIES
NOTES TO (UNAUDITED) CONSOLIDATED
FINANCIAL STATEMENTS (continued)
Note 4 - New Accounting Standards
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The Company adopted Statement of Financial Accounting Standards
No.130 "Rep rting Comprehensive Income" (SFAS 130) in 1998. All
periods presented are in accordance with SFAS 130. SFAS 130
established standards for reporting and displaying comprehensive
income and its components. Comprehensive income consists of net
income and other changes in stockholders' equity from nonowner
sources. These nonowner sources consist of unrealized gains and
losses on certain investments in debt and equity securities.
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 134,760. As of March 31,
1999, 33,690 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
97,782 at March 31, 1999 with 94,332 exercisable on a cumulative
basis in equal installments over a five year period, and 3,450
exercisable upon the date of option grant. As of March 31, 1999,
131,472 options have been granted, of which none have been
exercised. Options totaling 128,022 were granted with an
exercise price of $9.33 per share, 2,250 were granted with an
exercise price of $11.25 per share, 900 were granted with an
exercise price of $11.67 per share and the remaining 300 at $14
per share. As of March 31, 1999, 80,263 options are exercisable.
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.
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1999 AND DECEMBER
31, 1998
The Company's total consolidated assets increased $.8 million,
or .7% to $114.0 million at March 31, 1999 from $113.2 million
at December 31, 1998. The increase in assets was principally
due to increases in the loan and mortgage-backed securities
portfolios which offset a reduction in interest-earning deposits
at other banks. Cash and due from banks and interest-earning
deposits decreased $3.0 million from $10.3 million at December
31, 1998 to $7.3 million at March 31, 1999 due to increased loan
demand and the Company's decision to invest in mortgage-backed
securities. Net loans receivable increased $1.5 million or 1.2%
from $81.4 million at December 31, 1998 to $82.9 million at
March 31, 1999. The Company originated 112 mortgage loans
during the three months ended March 31, 1999, as compared to 137
originations during the three months ended March 31, 1998. The
decrease in originations in 1999 over 1998 was due to a slight
increase in the prevailing market rates for the Company's
mortgage products causing a decline in refinancing existing
mortgages. The Company has sold a majority of its fixed-rate
originations during the first quarter of 1999 to the Federal
Home Loan Mortgage Corporation, servicing retained without
recourse. Total real estate loans amounted to $60.1 million
at March 31, 1999 as compared to $60.5 million at December 31,
1998. Consumer/commercial lending decreased by $.5 million or
1.8%, from $28.2 million at December 31, 1998 to $27.7 million
at March 31, 1999. The Company's portfolio of investment
securities decreased $.5 million from $1.5 million at December
31, 1998 to $1.0 million at March 31, 1999 and the proceeds from
these maturities have been invested into mortgage-backed
securities which currently bear a greater yield. In addition,
the Company's portfolio of mortgage-backed securities increased
$3.6 million, or 29.0%, from $12.4 million at December 31, 1998
to $16.0 million at March 31, 1999.
Deposits increased $.4 million or .4% from $89.1 million at
December 31, 1998 to $89.5 million at March 31, 1999. Federal
Home Loan Bank advances remained unchanged at $8.5 million.
Total stockholders' equity has decreased $137,000 or 1.0% from
December 31, 1998 to March 31, 1999. The Company posted
comprehensive income of $294,000 for the three months ended
March 31, 1999 while paying dividends of $0.10 per share of
common stock, or $118,800. During the three months ended March
31, 1999, the Company recognized compensation earned in the
amount of $67,000 from the Employee Stock Ownership Plan and the
Management Recognition Plan. In addition, the Company has
continued to repurchase some of its outstanding shares of common
stock and for the three months ending March 31, 1999, had
repurchased 21,631 shares at an average purchase price of
$14.37 per share.
COMPARISON OF RESULTS OF OPERATIONS
Net income for the three months ended March 31, 1999 improved to
$295,000 ($.26 basic and $.25 diluted earnings per share,
respectively) compared to $284,000 ($.24 basic and $.25 diluted
earnings per share, respectively) for the three months ended
March 31, 1998. The improvement in earnings was primarily the
result of an increase in gain on sale of loans which offset
higher non-interest expense and static net interest income.
Net interest income for the three months ended March 31, 1999
remained at $1.1 million as compared to the three months ended
March 31, 1998 as the decline in interest expense matched the
decline in interest income. The net interest margin decreased
from 4.17% for the three months ended March 31, 1998 to 3.95%
for the three months ended March 31, 1999. The average yield on
interest-earning assets decreased 68 basis points from 8.39% for
the three months ended March 31, 1998 to 7.71% for the three
months ended March 31, 1999, while the average cost on interest
bearing liabilities decreased from 4.65% for the three months
ended March 31, 1998 to 4.18% for the three months ended March
31, 1999. The average balance of interest-earning assets was
$102.6 million for the three months ended March 31, 1998 as
compared to $108.0 million for the three months ended March 31,
1999, while the average balance of interest-bearing liabilities
was $93.2 million for the three months ended March 31, 1998 as
compared to $97.2 million for the three months ended March 31,
1999.
The provision for loan losses amounted to $45,000 and $35,000
for the three months ended March 31, 1998 and 1999,
respectively. At March 31, 1999, 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
the allowance for loan losses needed to be $192,000, and
therefore, a $35,000 provision was recorded for the quarter
ended March 31, 1999.
Non-interest income increased $33,000 from $180,000 for the
three months ended March 31, 1998 to $213,000 for the three
months ended March 31, 1999 principally due to higher gains on
sales of loans. Gain on the sale of fixed-rate mortgage loans to
the FHLMC recognized for the three months ended March 31, 1998
was $77,000 as compared to $126,000 for the three months ended
March 31, 1999 due to increased sales to FHLMC primarily
resulting from lower interest rate refinancing. For the
quarter ended March 31, 1999, loan fees and service charges
amounted to $60,000 as compared to $62,000 for the first quarter
of 1998. Insurance commissions and fees were $19,000 for the
three months ended March 31, 1999 as compared to $17,000 for the
three months ended March 31, 1998.
Non-interest expense increased $21,000 from $734,000 for the
three months ended March 31, 1998 to $755,000 for the three
months ended March 31, 1999 due to increases in occupancy, data
processing and other expense which offset a decline in
compensation and employee benefit expense. Net occupancy
expense increased $17,000 from $81,000 for the three months
ended March 31, 1998 to $98,000 for the three months ended March
31, 1999. Data processing increased $8,000 from $63,000 for the
three months ended March 31, 1998 to $71,000 for the three
months ended March 31, 1999 due to the installation of new
equipment and software.
Other expense increased $12,000 from $124,000 for the three
months ended March 31, 1998 to $136,000 for the three months
ended March 31, 1999. Compensation and employee benefits
decreased $16,000 from $452,000 for the three months ended March
31, 1998 to $436,000 for the three months ended March 31, 1999
due to a change in the reduced cost of benefits. Deposit
insurance premiums remained constant for the three month periods
ended March 31, 1999 and 1998.
Other comprehensive income is composed of net unrealized gains
and losses on securities classified as available for sale in
accordance with SFAS No. 115. For the quarters ending March 31,
1998 and 1999, the Company reported net unrealized gain (losses)
on securities, net of tax benefits, of ($51,000) and ($1,000)
respectively.
Liquidity and Capital Resources. The Company's primary sources
of funds are deposits and proceeds from principal and interest
payments on loans. 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. At March 31,1999, there were no material
commitments for capital expenditures and the Company had
unfunded loan commitments of approximately $1.7 million.
At March 31, 1999, 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, 1999,
management was not aware of any current recommendations by the
regulatory authorities which, if implemented, would have such an
effect. The Savings Bank exceeded all of its capital
requirements at March 31, 1999.
YEAR 2000 READINESS DISCLOSURE
A great deal of information has been disseminated about
the global computer crash that may occur in the year 2000. Many
computer programs that can only distinguish the final two digits
of the year entered (a common programming practice in earlier
years) are expected to read entries for the year 2000 as the
year 1900 and compute payment, interest or delinquency based on
the wrong date or are expected to be unable to compute payment,
interest or delinquency. Rapid and accurate data processing is
essential to the operations of the Bank. Data processing is
also essential to most other financial institutions and other
companies.
In 1997 a committee was formed to prepare the Bank for
Year 2000 readiness. Since that time the committee has reviewed
all date sensitive equipment which included personal computers,
security, ATMs, other critical systems and the service bureau
that provides data processing to the Bank. All of the Bank's
hardware and software has been tested for Year 2000 compliance.
The personal computers that were found to be non-compliant were
replaced with Y2K computers. The service bureau expects to
resolve any potential Y2K issues by the end of July, thus
allowing time to further monitor for Year 2000 compliance. All
phases of application software testing with the service bureau
has been completed satisfactorily.
The Bank projected a budget for Y2K expenses early in 1998
to be approximately $310,000. It is anticipated that this
projection will be sufficient unless an unexpected need arises.
The contingency resumption plan is designed to be
implemented immediately should a disruption of service occur in
the Year 2000. The management of the Bank believes the plan
could be implemented without any potential losses to the Bank.
PART II. OTHER INFORMATION
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, 1999, 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
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(a) Exhibits. 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. Deffered 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
(b) Reports on Form 8-K. The Corporation did not file a
current report on Form 8-K during the quarter covered by this
report.
______________
(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
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 17, 1999 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)